Do low interest rates increase inequality?

[EverythingisNew]

Am I the only one that was disguised that the stock market went UP after Russia invaded Ukraine? They say that sanctions against Russia will increase inflation and all Americans will have to pay the price. But ironically the stock market is up, because this new pain will make the Fed slow their interest rate increases.

It seems to me that low internet rates create inflation. Inflation hits everyone, but it also leads to asset appreciation. Inflation hurts the poor the most because they don’t have assets to offset the price increases. They become farther away from assets that they are trying to obtain (houses, retirement nest eggs). The rich asset holders however benefit from inflation. They qualify to borrow more and money makes money! The person with 3 houses has done way better in the past 2 years than the person who works 3 jobs.

As inflation rises, the future will be, did you have assets before 2020 or not? Do you think that low interest rates increase inequality?  What are your thoughts on the Fed? They are not elected, but seem to effect prosperity more than any elected official. Who do they represent?

[Dicey]

Perhaps a little review of history will help you feel less "disgusted". There's an axiom, "War is good for business" for a reason.

Instead of fretting about all this, look for something concrete to do instead. Donate food, volunteer at a food bank, organize a food drive, start a Little Food Pantry. Learn about local politics. Attend a City Council meeting, learn who your Council members are. Help one or more get elected. Learn what the local non-profits are doing to help and give them money, time, or both.

If you sport a partisan flag, tear it down. The issues will only be solved with support from every quarter. It will take all of us, working together to serve common goals, to make lasting changes for the betterment of all.

In short, stop bitching and do something constructive, even if it's small, today. You'll feel a lot better.

MOD NOTE: No need to be rude.

[Rob_bob]

Looking at a chart of the S&P 500 it looks like it was down when Russia invaded.  It's currently up 1.93%, still lower than 5 days ago by a few points so I wouldn't say it went up on the invasion.

The market (investors) try to look ahead, how will the economy do in the future.  How will this invasion affect the U.S. economy?  Oil prices were going up before the invasion.

Low interest rates don't "cause" inflation, lots of dollars chasing fewer goods can cause inflation, increasing the money supply can cause inflation.  High interest rates can slow inflation, but do you think 17% interest rates (I remember when they were that high) would help the poor?  Yes, what little they might have in a saving account might make a little more over inflation.  Can the poor afford to buy a home paying those kind of interest rates? Low rates help business to grow and hire more people, high rates cause business to cut back and lay people off. Do you think high interest rates increase equality?

And where do you fit in?  Are you one of the poor trying to make ends meet or are you one with a nice income and investment/retirement account?

[EverythingisNew]

Perhaps a little review of history will help you feel less "disgusted". There's an axiom, "War is good for business" for a reason.

Instead of fretting about all this, look for something concrete to do instead. Donate food, volunteer at a food bank, organize a food drive, start a Little Food Pantry. Learn about local politics. Attend a City Council meeting, learn who your Council members are. Help one or more get elected. Learn what the local non-profits are doing to help and give them money, time, or both.

If you sport a partisan flag, tear it down. The issues will only be solved with support from every quarter. It will take all of us, working together to serve common goals, to make lasting changes for the betterment of all.

In short, stop bitching and do something constructive, even if it's small, today. You'll feel a lot better.

Wow I’m surprised at the personal attacks. I actually volunteered all day at the public school today and volunteer regularly.

I don’t think this is a partisan thought. What political party thinks low interest rates increase inequality?

Can you let me know the history of “tough” economic sanctions being good for an economy? Please share.

[vand]

The market doesn't shoot up just because war breaks out.. it doesn't work like that.  But it prices in events and, moreover it hates uncertainty. That's why it has been sliding (amongst other reasons), and why it rallied on the outbreak of the conflict - because at least there was clarity of what was going to happen next.

I remember the Gulf war very well - the market fell into the invasion of Kuwait, then bounced around the lows, and then had a massive rally on the day that Operation Dersert Storm commenced in Jan 1991.. and it never looked back.

[maizefolk]

Inflation hits everyone, but it also leads to asset appreciation. Inflation hurts the poor the most because they don’t have assets to offset the price increases. They become farther away from assets that they are trying to obtain (houses, retirement nest eggs). The rich asset holders however benefit from inflation. They qualify to borrow more and money makes money! The person with 3 houses has done way better in the past 2 years than the person who works 3 jobs.

I disagree with you. I agree with you that inflation is immaterial to the super rich whose income comes from owning real assets whose value and income generated increase with inflation.

But demand side inflation ("normal" inflation rather than stagflation) is also surprisingly immaterial to the working poor who change jobs frequently and whose hourly rates tend to increase in lockstep or even ahead of prices. In 2019, unskilled hourly workers in the part of the country I live in were getting $7.25-9.00/hour with the lower bound set by the federal minimum wage. Now even at $15/hour it is hard to get applicants so people are making almost twice as much, while also enjoying better working conditions because their bosses are always afraid of them leaving for another job. The cost of living has gone up, but not nearly as much as the pay for jobs at the low end.

The people most hurt by inflation are the folks in the middle working salaried job. They tend to change jobs infrequently and, while they have more job security in normal times, also tend to have less bargaining power to make sure their wages keep up with inflation. My employer's overall raise pool for this year is less than 1/2 of inflation over the past 12 months.

This is the same pattern you see when reading about severe inflation in the past. In Weimar German the industrialists and the workers in their factories -- in fact anyone paid by the hour or piece of work --  were both able to do well for a long time in an inflationary environment that destroyed the wealth and buying power of folks in more traditionally middle class jobs like teachers, doctors and government workers.

[PDXTabs]

Am I the only one that was disguised that the stock market went UP after Russia invaded Ukraine? They say that sanctions against Russia will increase inflation and all Americans will have to pay the price. But ironically the stock market is up, because this new pain will make the Fed slow their interest rate increases.

The US markets are up, in my opinion, because we are less hurt than Russia and Europe so there is a TINA trade. The US is the least bad right now. Additionally sanctions weren't/aren't as bad as they could be (yet).

It seems to me that low internet rates create inflation. Inflation hits everyone, but it also leads to asset appreciation. Inflation hurts the poor the most because they don’t have assets to offset the price increases. They become farther away from assets that they are trying to obtain (houses, retirement nest eggs). The rich asset holders however benefit from inflation. They qualify to borrow more and money makes money! The person with 3 houses has done way better in the past 2 years than the person who works 3 jobs.

Inflation has winners and losers. People who can increase their wages to keep up win, people who hold hard assets win (or at least don't lose).

But orthogonal to inflation are real interest rates. When real interest rates are negative then people with access to borrow win.

Right now we are in a situation where some people in society hold hard assets and can borrow at negative real rates to buy more of them. This absolutely increases inequity and for a partial discussion of this situation I strongly recommend Engine of Inequality by Karen Petrou.

As inflation rises, the future will be, did you have assets before 2020 or not? Do you think that low interest rates increase inequality?  What are your thoughts on the Fed? They are not elected, but seem to effect prosperity more than any elected official. Who do they represent?

I think that negative real rates are bad for inequity and that the Fed is exacerbating this trend.

[Dicey]

Perhaps a little review of history will help you feel less "disgusted". There's an axiom, "War is good for business" for a reason.

Instead of fretting about all this, look for something concrete to do instead. Donate food, volunteer at a food bank, organize a food drive, start a Little Food Pantry. Learn about local politics. Attend a City Council meeting, learn who your Council members are. Help one or more get elected. Learn what the local non-profits are doing to help and give them money, time, or both.

If you sport a partisan flag, tear it down. The issues will only be solved with support from every quarter. It will take all of us, working together to serve common goals, to make lasting changes for the betterment of all.

In short, stop bitching and do something constructive, even if it's small, today. You'll feel a lot better.

Wow I’m surprised at the personal attacks. I actually volunteered all day at the public school today and volunteer regularly.

I don’t think this is a partisan thought. What political party thinks low interest rates increase inequality?

Can you let me know the history of “tough” economic sanctions being good for an economy? Please share.

1. There was no personal attack. You asked a question on a public forum, I gave you suggestions from my own experience.
2. Please note I said "If" you sport a partisan flag...
3. My first two sentences were in response to your first sentence. I was not referring to sanctions specifically, nor does the axiom I offered. It is about the business of war, not about sanctions.
4. As a lifelong volunteer, I'm sure we have more in common than you might believe.
5. I hope getting out and helping others made your outlook a little sunnier today.

[MustacheAndaHalf]

Am I the only one that was disguised that the stock market went UP after Russia invaded Ukraine? They say that sanctions against Russia will increase inflation and all Americans will have to pay the price. But ironically the stock market is up, because this new pain will make the Fed slow their interest rate increases.

You can come out of hiding now, after disguising yourself.  But if you were disgusted, that shows a lack of understanding of the stock market.  The stock market is not a sympathy gauge.  It doesn't care if more people are dying of Covid-19 unless that impacts business and consumer spending.  If you look to the stock market as a moral guide, I would strongly advise you to stick with passive investing in index funds.

The stock market predicts the financial impact on public companies.  Initial estimates believed Russian oil would be sanctioned, leading to oil price increases and problems with Europe's supply of oil (and LNG).  When the US + Europe announced Russian energy markets (aka oil) would not be impacted, that showed the more pessimistic investors were wrong about the market impact.  Because sanctions were lighter than expected, the stock market moved up.  You also saw oil prices drop for the same reason.

[PDXTabs]

Am I the only one that was disguised that the stock market went UP after Russia invaded Ukraine? They say that sanctions against Russia will increase inflation and all Americans will have to pay the price. But ironically the stock market is up, because this new pain will make the Fed slow their interest rate increases.

The stock market predicts the financial impact on public companies.  Initial estimates believed Russian oil would be sanctioned, leading to oil price increases and problems with Europe's supply of oil (and LNG).  When the US + Europe announced Russian energy markets (aka oil) would not be impacted, that showed the more pessimistic investors were wrong about the market impact.  Because sanctions were lighter than expected, the stock market moved up.  You also saw oil prices drop for the same reason.

Yes, we should all be disgusted that the west hasn't sanctioned Russian oil companies yet. US corporations (like Exxon) are still free to work in Russia to send dividend checks back to their shareholders in the USA. But the stock prices are the effect, not the cause.

[DaTrill]

Am I the only one that was disguised that the stock market went UP after Russia invaded Ukraine? They say that sanctions against Russia will increase inflation and all Americans will have to pay the price. But ironically the stock market is up, because this new pain will make the Fed slow their interest rate increases.

It seems to me that low internet rates create inflation. Inflation hits everyone, but it also leads to asset appreciation. Inflation hurts the poor the most because they don’t have assets to offset the price increases. They become farther away from assets that they are trying to obtain (houses, retirement nest eggs). The rich asset holders however benefit from inflation. They qualify to borrow more and money makes money! The person with 3 houses has done way better in the past 2 years than the person who works 3 jobs.

As inflation rises, the future will be, did you have assets before 2020 or not? Do you think that low interest rates increase inequality?  What are your thoughts on the Fed? They are not elected, but seem to effect prosperity more than any elected official. Who do they represent?

This was most likely a short cover hedge unwinding trade.  Investor buys a put, seller of the put shorts a small portion of the underlying stock/index to hedge losses.  When investor sells put, hedge of put seller then has to buy to cover position.  This can be seen by broker who can determine percentage of buy to open vs buy to cover trades on Thursday and Friday.  Many day to day moves in the stock market are mechanical and not due to some change in forward looking economic conditions.  There are several other days that are driven my stock market mechanics, triple, quadruple witching, end of month, quarter days are also like this. 

Put call ratio was in major imbalance over the past few weeks and why these short cover rallies will persist.  This is why it is dangerous to short in a bear market, the rallies are wild, rip your face off and leave few survivors even when markets tank.         

[anni]

@KateFIRE
Russia notwithstanding, I think you are right, and I don't think worrying about this is wrong. This is something I have been tempted to bang my head against a wall about, especially in regards to housing. I am not an economist, but I have been noodling over what it would take for the theoretical "other shoe" to drop.

I've been watching the homes market, both sales and rentals, in my hometown for a long time now. It used to be an affordable place with a pretty high quality of life. A lot of houses that I've seen on the market in the last 2-3 years have been bought by investors at presumably low interest rates, cheaply flipped, and are now being rented out for like >$1000/month more than what a homeowner's mortgage might have been on that home. So, not only did hopeful owners not get to buy those homes, but now house prices are up $100k+ and I'm sure people are getting kicked out of affordable rentals so the owners can sell, and/or the rent is getting jacked up super fast (no tenant protections in my state). And this is a city that was already gentrifying rapidly, before Covid.

So, 1+1=2, even mediocre rentals are getting pricey because even relatively well-off locals can no longer afford to buy, so they're in the rental market too until more housing gets built (and not immediately snapped up by investors). The owning class wins. For now. And this is happening everywhere. It's just supply and demand, I guess, but it does seem like anyone who didn't already own the roof they lived under is suffering financially more than those owners.

In addition to corporate profit maximizing, generational wealth is also certainly having an outsized impact on the privileged few first-time buyers whose parents own their home and cashed out some of its value for down payment assistance, or others who have received inheritances, etc, so they have the cash to be able to afford more in this market. Not a new phenomenon, but certainly not helping the average person.

But all of these factors have been there throughout history, it's just capitalism, feudalism lite, whatever you want to call it. Low interest rates may have temporarily exacerbated the issue just because of how much the owning class gets to profit off their property. But I don't think high interest rates would have necessarily made things more equitable.

Instead of fretting about all this, look for something concrete to do instead. Donate food, volunteer at a food bank, organize a food drive, start a Little Food Pantry. Learn about local politics. Attend a City Council meeting, learn who your Council members are. Help one or more get elected. Learn what the local non-profits are doing to help and give them money, time, or both.

Tone aside, I think @Dicey 's advice is pretty solid. You can let things happen to you, or you can organize. Assuming you aren't already getting priced out of your own neighborhood (big if lol), getting involved in local affairs if you've got the time is always better than letting things just happen around you or watching your neighbors suffer. In Wouldn't Take Nothing for My Journey Now, Maya Angelou said:

What you're supposed to do when you don't like a thing is change it. If you can't change it, change the way you think about it. Don't complain.

And I would caveat that there is such a thing as constructive bitching - bitching to the people in charge who rely on your vote, your money, and/or your skillset in your community.

Being poor sucks no matter what the interest rate is. So, what can you do to help decrease how many people are in poverty?