Taxes should obviously have been raised. But like the Ukraine war, the Fed should not raise rates to fight higher labor costs that are the result of a restrictive immigration policy. If Boomers want to keep immigrants out and pay double to have a non-immigrant care for them in a nursing home then be my guest. What you don’t do is have the Fed step in and f the average worker over so that they end up grateful to wipe old Boomer ass for low wages.
Going back to the Ukraine war. Common sense and history say that controlling just for going from no war to war, the proper response is to actually lower interest rates to support increased production to support the war effort/disruptions from war.
This can be confirmed by thinking about it. Shit, energy and food prices are up because we can’t get it from Russia anymore. Well, we need our companies to invest to produce more of our own energy and food…. which would be helped by lower interest rates.
Only a myopic, 3rd rate bureaucrat would think it appropriate to focus on short term prices resulting from
a shock war and respond by seeking to make Americans poorer.
FYI, obviously I agree rates had to increase from 0% in early 2020 and have been a bit lazy in my language. When I say “raise rates” or “lower rates” I mean in relation to the guidance the Fed had previously put out.
For the record, if it were up to me the total plan would have been:
Energy Inflation: Sell from the strategic reserve but require the purchasers to pass on the full cost savings to consumers. Instead we just subsidized big oil companies.
Consumer Staples Inflation: Increase corporate taxes, targeting price gougers if possible, and use that revenue to provide the working class with assistance on consumer staples.
Labor Shortage: Increase legal immigration by a lot, put in an express lane.
Housing Inflation: Increase first time homebuyer benefits. Most of the plans in the past have been dwarfed by inflation.
Overall: Hike rates, but less severely than they have been - and they should have started sooner. And don’t take them back to zero when you cut again.
I think this was the best path towards a soft landing, a moral solution that would have been fair to the country, and something that addressed all the inflationary causes as well as the asset bubbles.
I’m guessing you and I would mostly agree on most of this @Pwn. Problem is most of it is a pipe dream, so it comes down to how much and how quickly the Fed should have been hiking, as that’s the only way to address any of it in the “greatest democracy in the world.”
The average worker hasn’t been screwed over yet but the recent tech layoffs weren’t from Powell raising rates the previous month, they were set in motion long ago. Similarly, the Powell recession for the average worker is already set in motion.
Listening to Powell speak and with our discussion in mind, it’s obvious where Powell is going off the rails. Riding or dying with a 2% inflation target is simply not rational in the current climate, i.e. Ukraine war, boomers retiring, unwinding of global trade/rise in nationalism and isolationism, restrictive immigration policy, etc.
All of those things naturally shift prices upward and the Fed sticking its nose where it doesn’t belong is going to end up in tears.
I think a recession is a near guarantee, I don’t think it’s a lock to hurt the working class nearly as much as usual. We have a labor shortage and the cost of living isn’t going down. Most people spend most of their money on their cost of living. So I don’t think a slowing economy has to hurt the average worker this time.
It’s kind of like blood from a stone at this point. The wealthy have like 60% of the country living paycheck to paycheck, and they have a labor shortage. So how do they take any more from the average worker?
I think we’re going to see a small uptick in unemployment, Powell said 4.5%. I think what we really see is a lot of churn and disruption as this messed up labor market resettles post-pandemic.
I think we’re going to see profit margins tighten, corporate earnings decline, and the stock market adjust accordingly.
I think he may be bluffing to an extent to try to force Congress to act. Like there are factors that aren’t his business leading to higher inflation which is his business. He doesn’t want to let inflation rip, nor should he imo. We could argue that 3% is ok, and that’s fine with me, but he may be ok with that too. But I think he understands that the real underlying issues require Congressional action which only happens if the wealthy demand it and they only do so if it hits their pocketbook. He’s basically signalling that he’s going to grab their pocketbook if nothing changes, so they’ll want something to change.
That is my guess, at least. I don’t think he’ll keep hiking rates if inflation is at 3%. Although he can also just leave them elevated long term if it doesn’t drop further. Like let’s say he does 25 bips in May, so we’re at what, 5.25%? Inflation is ticking down going into the next meeting and he says we don’t want to overshoot, so we’re going to pause, but we’re not cutting unless/until we’re approaching 2%, and we’ll hike more if we need to. What’s wrong with that approach? Then if progress stops, you hike again.
But again, I don’t think 4.5% unemployment is a big problem, that’s normal/good historically. Until it’s trending above 5%, I’m not worried about breaking anything for the working class.
Even with 4.5% unemployment, 0.9% of Americans lose their job and the rest have their leverage and options decreased. There needs to be real upside for that trade-off and making people poorer to counteract the natural result of demographic trends and war/trade/immigration policy is not upside.
Higher interest rates on net are good for the rich, they already have all the cash and 3 years ago they had to take on a decent amount of risk to expect to earn 5% on their cash. Now they can get that 5% by just putting cash in the bank.
What is not good for some of the rich is rates rising so quickly and high that they break the economy but obviously that is not good for anybody.
They are borrowing from other rich people with financial institutions as conduits. With higher rates, old money can make money the old fashioned way instead of dealing with tech bro nonsense. Will be winners and losers among the rich but on net the rich will still get richer.
No the original lender is a central bank (that had it printed) that lent it to a bank that lent it to them to finance various other investments. Interest rates rising is actually the central banks raising the price of money. Most of the money being bought on any given day is being bought by the ultra wealthy.
The wealthy mostly have not been sitting in cash, higher rates are making most of their investments lose money/return less money. Meanwhile, they often borrow against their assets to avoid realizing gains and paying taxes. Higher rates make that more expensive.
You act like they can pull their money out of the tech bro companies without incurring losses, but they mostly cannot.
Since peak, in terms of market cap…
DASH has lost $73B
TSLA has lost $676B
META has lost $450B
AMZN has lost $1.078T
Rough numbers based off quick math and eye balling the charts. That’s $2.27T in those four stocks alone. Who do you think is losing that money? It’s not the working class, they don’t have trillions sitting around to lose.
According to a quick Google search, 58% of Americans own stock and the top 1% own 53% of all stock. The top 10% own 88.6% of all stock. The bottom 50% own 0.6% of stocks.
The remaining 39% in the 51st to 89th percentile owns 10.8% of all stock, and that group is going to skew hard towards the Boomers you think are benefiting from a rate hike.
Sort of, but much cheaper. My expectation is that rent inflation basically eats up ~100% of wage growth going forward in areas Millennials and Gen Z want to live. Part of that home buying spree when rates were low, a big part, was private equity and REITs buying up homes to turn them into rentals. This not only drives up purchasing prices, it’s going to give them a cartel-like control over rent prices in the areas they targeted.
I believe most Millennials will be somewhat inelastic on rent theyre willing to pay. There’s a very fatalistic, “Well fuck it we have never been allowed to get ahead, even for a second, so we’ll pay the rent if we can swing it as long as we don’t have to go backwards in standard of living,” attitude amongst Millennials imo.
Sort of, but when I moved into my current townhouse I’m renting, I could have bought one similar for about $315K. If I put 3% down, and took out a 3.5% mortgage I’d have paid $2,044 a month including PMI. Add $250/mo for expected maintenance a d it’s $2,294/mo in costs.
I’m paying $2,100 in rent.
I’ve been here 19 months. So I’d have come out of pocket $9,450 (down payment) + $3,686 (extra monthly cost) = $13,136.
I’d have built up about $700/mo in equity through payments for $13,300. Close enough to call it a wash.
So, what’s the house worth now? $400K. And what’s the market rent for a place like this? $2,400. So far my landlord hasn’t hit us with an increase, but this will be our last year here most likely.
So I’m $85K behind. Ok, closing costs, sure. Call it $60K behind where I’d be, PLUS I’d have this locked in at $2,294 in monthly costs including maintenance and I’d have no exposure to housing cost inflation.
My thinking was the same as yours, PMI sucks. It’s lighting money on fire. Maybe, but if that’s the case, then rent is lighting money on fire while it’s in your pocket, and dousing yourself in kerosene.
Yeah opportunity cost is a real cost. My PMI is like 70 bucks a month. I actually am totally fine with spending 70 a month to have 40k more borrowed at 3.25%.