Author Topic: It's just .25%, what's the big deal? (Fed policy)  (Read 12585 times)

FiveSigmas

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It's just .25%, what's the big deal? (Fed policy)
« on: September 12, 2015, 09:32:16 PM »
There's obviously been a ton of talk and speculation about the Fed raising the federal funds rate above 0% (and how it might/might not freak the markets out). What I haven't heard, at least until now, is exactly how the Fed will attempt to raise the federal funds rate -- apparently it's no easy feat.

Welcome to a brave new world:

http://www.nytimes.com/2015/09/13/business/economy/the-feds-policy-mechanics-retool-for-a-rise-in-interest-rates.html

(BTW: really great article, IMHO)

Edited: updating title.
« Last Edit: September 12, 2015, 09:42:00 PM by FiveSigmas »

ditheca

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #1 on: September 12, 2015, 11:29:07 PM »
Fascinating.  Thanks for the link!

forummm

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #2 on: September 13, 2015, 06:23:28 AM »
I'm the kind of nerd that reads 700 page books on the mechanics of the Fed's operations and its application and various times in history. It's a pretty interesting subject if you're into that kind of thing. This article highlights how they are trying out something new because this is an unprecedented situation (following other unprecedented situations the past decade).

wienerdog

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #3 on: September 13, 2015, 08:51:14 AM »
Compounding interest works on debt too.  How much of our debt payments are we borrowing to keep up?

forummm

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #4 on: September 13, 2015, 08:59:13 AM »
Compounding interest works on debt too.  How much of our debt payments are we borrowing to keep up?
Do you mean the federal government? All of it plus more. That's what running a deficit means. We refi a bunch (billions) of that debt each week. The government can pay less than a percent interest on a lot of it though (the short term stuff). On average the weighted interest rate for all Treasuries outstanding is a bit over 2%.

wienerdog

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #5 on: September 13, 2015, 09:12:12 AM »
So what happens to the debt payments when the feds begin to raise rates?

forummm

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #6 on: September 13, 2015, 09:47:05 AM »
So what happens to the debt payments when the feds begin to raise rates?
Nothing for the existing bonds (some have a 30 year duration). Newly issued debt will probably have a higher interest rate.

FiveSigmas

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #7 on: September 13, 2015, 11:59:47 PM »
Yeah, one can certainly have a compelling conversation about the side-effects of raising interest rates and the policy reasons for doing so. I just found it fascinating, though, the brand new machinery that they need to put in place in order to achieve the Herculean task of raising rates a mere quarter of a percent (while at least trying not to *totally* destabilize the markets).

Axecleaver

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #8 on: September 16, 2015, 01:56:12 PM »
In _Capital_ I learned that inflation was a government tactic to eliminate their debt over very long periods of time. Kind of an interesting idea when you think about it. Here's an article talking about that: http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-2

Kaspian

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #9 on: September 16, 2015, 02:12:44 PM »
There's a serious threat of inflation if they don't do this.  It has to happen sooner or later and there is no "ideal" time.  Occasionally you have to swallow a jagged, little pill.  The consequences of not doing this soon are far more grave.

Aphalite

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #10 on: September 16, 2015, 02:31:49 PM »
There's a serious threat of inflation if they don't do this.  It has to happen sooner or later and there is no "ideal" time.  Occasionally you have to swallow a jagged, little pill.  The consequences of not doing this soon are far more grave.

That's kind of silly, the reason they haven't so far is because they have been waiting for inflation to occur. To date, there's still not much inflation. To find an example of a "serious" threat of inflation, you'd have to go all the way back to the 80s - when the Fed had to increase rates to double digits in order to curb inflation. At the time, it caused a recession, but inflation needed to be curbed since it was running at double digits. Right now, all indicators are that inflation is near 0% (with the exception of strong brands which seem to be able to raise prices consistently without drops in sales)

Sparkie

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #11 on: September 16, 2015, 05:26:55 PM »

That's kind of silly..........To date, there's still not much inflation.


The money from QE has not found its way to mainstreet, so you're not seeing inflation in consumer items. However, the money has found its way to large banks / investment companies / and large corporations, that have used the funds for things such as share buybacks etc.

The inflation is there. In the sharemarket and property markets. Why else do you think the sharemarket has risen over the last few years when the underlying economy is dying? Take away the cheap money / debt, and the game changes - the Fed no longer has your back.

matchewed

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #12 on: September 16, 2015, 05:41:56 PM »

That's kind of silly..........To date, there's still not much inflation.


The money from QE has not found its way to mainstreet, so you're not seeing inflation in consumer items. However, the money has found its way to large banks / investment companies / and large corporations, that have used the funds for things such as share buybacks etc.

The inflation is there. In the sharemarket and property markets. Why else do you think the sharemarket has risen over the last few years when the underlying economy is dying? Take away the cheap money / debt, and the game changes - the Fed no longer has your back.

So actual corporate profits going up aren't from people buying things because the economy is secretly doing terribly which no one can see but you...

hodedofome

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #13 on: September 16, 2015, 08:02:31 PM »
I don't think it's the threat of just raising rates to.25%, I think it's people being scared it's just the start of a series of rate increases.


Sent from my iPhone using Tapatalk

forummm

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #14 on: September 16, 2015, 08:16:02 PM »
I don't think it's the threat of just raising rates to.25%, I think it's people being scared it's just the start of a series of rate increases.

An expectation of lower future returns due to less easy money.

wienerdog

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #15 on: September 17, 2015, 06:42:25 AM »
In _Capital_ I learned that inflation was a government tactic to eliminate their debt over very long periods of time. Kind of an interesting idea when you think about it. Here's an article talking about that: http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-2

What if inflation was much higher than the feds state and they were purposely keeping rates low to transfer money from the savers to eliminate the debt.  Politicians love this tactic as they are not on the hook for it.  If they say we need to raise taxes to help with the debt then there goes their career.  The only other way is to eliminate the debt is by eliminating the entitlements but then their career also goes down the drain.

forummm

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #16 on: September 17, 2015, 08:13:55 AM »
In _Capital_ I learned that inflation was a government tactic to eliminate their debt over very long periods of time. Kind of an interesting idea when you think about it. Here's an article talking about that: http://www.economist.com/blogs/freeexchange/2014/03/book-clubs-2

What if inflation was much higher than the feds state and they were purposely keeping rates low to transfer money from the savers to eliminate the debt. 
This kind of conspiracy is not possible with the way our government is organized. Too many people work on the data, and they are career civil service or independent officials. The methodology is imperfect, but it is what it is.

wienerdog

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #17 on: September 17, 2015, 09:02:38 AM »

This kind of conspiracy is not possible with the way our government is organized. Too many people work on the data, and they are career civil service or independent officials. The methodology is imperfect, but it is what it is.

I bet Social Security recipients disagree with you when their cost of living increase for 2016 is zero.

Retire-Canada

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #18 on: September 17, 2015, 09:34:42 AM »

I bet Social Security recipients disagree with you when their cost of living increase for 2016 is zero.

People love conspiracy theories - especially people with lots of time on their hands. Doesn't make them any more real.

It would be pretty hard to "hide" high inflation conditions simply by reporting it as being very low.

Gin1984

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #19 on: September 17, 2015, 09:39:54 AM »
Compounding interest works on debt too.  How much of our debt payments are we borrowing to keep up?
Do you mean the federal government? All of it plus more. That's what running a deficit means. We refi a bunch (billions) of that debt each week. The government can pay less than a percent interest on a lot of it though (the short term stuff). On average the weighted interest rate for all Treasuries outstanding is a bit over 2%.
And given that the rates internationally are a percent or two higher, I don't understand why we don't refi those within the US (maybe for a percent higher) and only owe our public.  Can someone explain why.

beltim

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #20 on: September 17, 2015, 09:50:29 AM »
Compounding interest works on debt too.  How much of our debt payments are we borrowing to keep up?
Do you mean the federal government? All of it plus more. That's what running a deficit means. We refi a bunch (billions) of that debt each week. The government can pay less than a percent interest on a lot of it though (the short term stuff). On average the weighted interest rate for all Treasuries outstanding is a bit over 2%.
And given that the rates internationally are a percent or two higher, I don't understand why we don't refi those within the US (maybe for a percent higher) and only owe our public.  Can someone explain why.

You're asking why we don't only allow domestic investment in Treasuries?  Well, you've identified one reason - it would cost more.  But I don't really understand the underlying thought - what advantage do you think the US would get from restricting the market?

Gin1984

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #21 on: September 17, 2015, 09:55:16 AM »
Compounding interest works on debt too.  How much of our debt payments are we borrowing to keep up?
Do you mean the federal government? All of it plus more. That's what running a deficit means. We refi a bunch (billions) of that debt each week. The government can pay less than a percent interest on a lot of it though (the short term stuff). On average the weighted interest rate for all Treasuries outstanding is a bit over 2%.
And given that the rates internationally are a percent or two higher, I don't understand why we don't refi those within the US (maybe for a percent higher) and only owe our public.  Can someone explain why.

You're asking why we don't only allow domestic investment in Treasuries?  Well, you've identified one reason - it would cost more.  But I don't really understand the underlying thought - what advantage do you think the US would get from restricting the market?
No, that is not what I am asking.  If you separate the money owed in the US into domestic and international, we pay more on the international market (or at least we did about five years back).  My question is why don't we offer more (closer to international rates) to get the money going to our citizens, not out of our country.

beltim

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #22 on: September 17, 2015, 09:58:50 AM »
Compounding interest works on debt too.  How much of our debt payments are we borrowing to keep up?
Do you mean the federal government? All of it plus more. That's what running a deficit means. We refi a bunch (billions) of that debt each week. The government can pay less than a percent interest on a lot of it though (the short term stuff). On average the weighted interest rate for all Treasuries outstanding is a bit over 2%.
And given that the rates internationally are a percent or two higher, I don't understand why we don't refi those within the US (maybe for a percent higher) and only owe our public.  Can someone explain why.

You're asking why we don't only allow domestic investment in Treasuries?  Well, you've identified one reason - it would cost more.  But I don't really understand the underlying thought - what advantage do you think the US would get from restricting the market?
No, that is not what I am asking.  If you separate the money owed in the US into domestic and international, we pay more on the international market (or at least we did about five years back).  My question is why don't we offer more (closer to international rates) to get the money going to our citizens, not out of our country.

Are you talking about Treasuries?  I've also never heard that claim before.  Treasury bonds are bought on a competitive market, so if there's any difference in the rates received by domestic holders and international holders, then it's likely because of a difference in average maturity of the bonds held.

rmendpara

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #23 on: September 17, 2015, 10:29:17 AM »
Probably not a huge deal overall, but it will certainly curb a bit of corporate profit on the low end of the return spectrum.

There may be some shock since it's been a while when rates were higher than today, but a necessary adjustments to normalize asset prices.

Gin1984

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #24 on: September 17, 2015, 11:26:07 AM »
Compounding interest works on debt too.  How much of our debt payments are we borrowing to keep up?
Do you mean the federal government? All of it plus more. That's what running a deficit means. We refi a bunch (billions) of that debt each week. The government can pay less than a percent interest on a lot of it though (the short term stuff). On average the weighted interest rate for all Treasuries outstanding is a bit over 2%.
And given that the rates internationally are a percent or two higher, I don't understand why we don't refi those within the US (maybe for a percent higher) and only owe our public.  Can someone explain why.

You're asking why we don't only allow domestic investment in Treasuries?  Well, you've identified one reason - it would cost more.  But I don't really understand the underlying thought - what advantage do you think the US would get from restricting the market?
No, that is not what I am asking.  If you separate the money owed in the US into domestic and international, we pay more on the international market (or at least we did about five years back).  My question is why don't we offer more (closer to international rates) to get the money going to our citizens, not out of our country.

Are you talking about Treasuries?  I've also never heard that claim before.  Treasury bonds are bought on a competitive market, so if there's any difference in the rates received by domestic holders and international holders, then it's likely because of a difference in average maturity of the bonds held.
I'll try to find it again, but this was over five years ago.  It was on the treasury page, I remember because I was just wandering through after checking i bond rates.  I'll post if I can.

wienerdog

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #25 on: September 17, 2015, 11:52:21 AM »

It would be pretty hard to "hide" high inflation conditions simply by reporting it as being very low.

They don't simply report it as low.  They manipulate what is used and how it is used to make it look better than what it actually is. 

Tricks like saying the newest Ipad cost $800 but it has new features and is faster so the value of it $500 since you are getting those features.  But is the value really worth $500 as you certainly can't buy it for that.  Would you go buy it for $800 and then immediately sell it for $500 as that is what it is really worth?  How would you ever model the price value of those features at $300 accurately?  They cook the books no different than Enron did and because it is the Government people think they are correct.

They are no longer comparing apples to apples or current time to a point in time in the past.

matchewed

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #26 on: September 17, 2015, 11:56:04 AM »

It would be pretty hard to "hide" high inflation conditions simply by reporting it as being very low.

They don't simply report it as low.  They manipulate what is used and how it is used to make it look better than what it actually is. 

Tricks like saying the newest Ipad cost $800 but it has new features and is faster so the value of it $500 since you are getting those features.  But is the value really worth $500 as you certainly can't buy it for that.  Would you go buy it for $800 and then immediately sell it for $500 as that is what it is really worth?  How would you ever model the price value of those features at $300 accurately?  They cook the books no different than Enron did and because it is the Government people think they are correct.

They are no longer comparing apples to apples or current time to a point in time in the past.

Because iPad is a line item while calculating inflation.

Look the inflation rates posted by the Fed are broad measurements across the whole country. They don't apply well to individual experience. But they do apply well to broad actions. So they may not reflect how much an iPad will cost tomorrow but they will tell us broadly speaking how much things will cost in the future.

poorboyrichman

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #27 on: September 17, 2015, 12:24:44 PM »
Look the inflation rates posted by the Fed are broad measurements across the whole country. They don't apply well to individual experience. But they do apply well to broad actions. So they may not reflect how much an iPad will cost tomorrow but they will tell us broadly speaking how much things will cost in the future.

+1

As long as your government runs a deficit and monetizes the debt, you have inflation. Also printing paper money (quantitative easing) = inflation.

Watch this...
http://www.peakprosperity.com/blog/86953/inflation-crash-course-chapter-11

Retire-Canada

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #28 on: September 17, 2015, 12:29:43 PM »

Tricks like saying the newest Ipad cost $800 but it has new features and is faster so the value of it $500 since you are getting those features.  But is the value really worth $500 as you certainly can't buy it for that.  Would you go buy it for $800 and then immediately sell it for $500 as that is what it is really worth?  How would you ever model the price value of those features at $300 accurately? 

I read and reread this 5 times. I have no idea what you are talking about.

Frugal D

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #29 on: September 17, 2015, 12:33:59 PM »
The Fed will not normalize in our lifetimes. If you think they will, you're delusional about the US and global economy. September's dot plot says it all. The Fed just bought themselves another 12 months of unquestioned zirp policy, and probably even nirp policy. Just look at Japan.

« Last Edit: September 17, 2015, 12:44:00 PM by Frugal D »

Aphalite

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #30 on: September 17, 2015, 12:34:26 PM »
As long as your government runs a deficit and monetizes the debt, you have inflation. Also printing paper money (quantitative easing) = inflation.

It's not that simple. Even if your government runs a deficit, if it's not enough of a deficit to cover the lack of consumer spending, and supply of goods still outpaces demand, you STILL won't have inflation (as a whole, obviously individual items like ipads/iphones that have inelasticity to pricing will be able to get away with price increases, same with things like coca-cola and chocolate)

Retire-Canada

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #31 on: September 17, 2015, 12:44:54 PM »

Tricks like saying the newest Ipad cost $800 but it has new features and is faster so the value of it $500 since you are getting those features.  But is the value really worth $500 as you certainly can't buy it for that.  Would you go buy it for $800 and then immediately sell it for $500 as that is what it is really worth? How would you ever model the price value of those features at $300 accurately?

This may answer the part of your post in bold. Although if you believe the gov't is out to get you this could just be another level of the conspiracy.

Quote
Is the use of "hedonic quality adjustment" in the CPI simply a way of lowering the inflation rate?

No. The International Labour Office refers to the hedonic approach as "powerful, objective and scientific". Hedonic modeling is just one of many methods that the BLS uses to determine what portion of a price difference is viewed by consumers as reflecting quality differences. It refers to a statistical procedure in which the market valuation of a feature is estimated by comparing the prices of items with and without that feature. Then, for example, if a television in the CPI is replaced by one with a larger screen and higher price, the BLS can make an adjustment to the price difference by estimating what the old television would have cost had it had the larger screen size.

Many of the challenges in producing a CPI arise because the number and types of goods and services found in the market are constantly changing. If the CPI tried to maintain a fixed sample of products, that sample quickly would shrink and become unrepresentative of what consumers were purchasing. Each time that an item in the CPI sample permanently disappears from the shelves, the BLS has to choose another, and then has to make some determination about the relative qualities of the old and replacement item. If it did not--for example, if it treated all new items as identical to those they replaced -- significant upward or downward CPI biases would result.

Critics often incorrectly assume that BLS only adjusts for quality increases, not for decreases, and that hedonic adjustments have a large downward impact on the CPI. On the contrary, BLS has used hedonic models in the CPI shelter and apparel components for roughly two decades, and on average hedonic adjustments usually increase the rate of change of those indexes. Since 1998, hedonic models have been introduced in several other components, mostly consumer durables such as personal computers and televisions, but these newer areas have a combined weight of only about one percent in the CPI. A recent article by BLS economists estimated that the hedonic models currently used in the CPI outside of the shelter and apparel areas have increased the annual rate of change of the All Items CPI, but by only about 0.005 percent per year.

From: http://www.bls.gov/cpi/cpiqa.htm

acroy

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #32 on: September 17, 2015, 12:50:47 PM »
The Fed will not normalize in our lifetimes. If you think they will, you're delusional about the US and global economy. September's dot plot says it all. The Fed just bought themselves another 12 months of unquestioned zirp policy, and probably even nirp policy. Just look at Japan.
^^^Bingo^^^
look at Japan and the rest of the 1st world. They cannot raise rates; they are stuck.

Frugal D

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #33 on: September 17, 2015, 12:54:36 PM »
The Fed will not normalize in our lifetimes. If you think they will, you're delusional about the US and global economy. September's dot plot says it all. The Fed just bought themselves another 12 months of unquestioned zirp policy, and probably even nirp policy. Just look at Japan.

Take specific note here, for the first time ever a Fed member has voted for negative interest rates, including the 08/09 years. What does that imply about the economy today versus then when the world was imploding?

wienerdog

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #34 on: September 17, 2015, 12:58:16 PM »

I read and reread this 5 times. I have no idea what you are talking about.

Hedonic modeling.

wienerdog

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #35 on: September 17, 2015, 01:57:31 PM »


This may answer the part of your post in bold. Although if you believe the gov't is out to get you this could just be another level of the conspiracy.


Yup and who said the government was out to get anybody?  The only thing I question is the value of the government and right now they are out of control.  I think the past shows many of the people that make up the government are not the most honest people in this country.  When you don't have much accountability that is what happens.  Manipulating a model is easy.

milesdividendmd

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It's just .25%, what's the big deal? (Fed policy)
« Reply #36 on: September 17, 2015, 02:27:21 PM »


This may answer the part of your post in bold. Although if you believe the gov't is out to get you this could just be another level of the conspiracy.


Yup and who said the government was out to get anybody?  The only thing I question is the value of the government and right now they are out of control.  I think the past shows many of the people that make up the government are not the most honest people in this country.  When you don't have much accountability that is what happens.  Manipulating a model is easy.

Be specific. What specifically "happens?" What evidence do you have that our government workers are any more or less dishonest than in the past?

Do you question the value of specific parts of the government, or the whole idea of government. And if the latter what alternative form of government do you favor, and what's your evidence?

What "accountability" do we not have?


Who is manipulating what and in what direction and why?

These general and non specific statements of paranoia tell us more about your emotional state than your thoughts.

milesdividendmd

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #37 on: September 17, 2015, 02:31:25 PM »

There's a serious threat of inflation if they don't do this.  It has to happen sooner or later and there is no "ideal" time.  Occasionally you have to swallow a jagged, little pill.  The consequences of not doing this soon are far more grave.

The global risk right now is deflation. Not inflation.

And deflation is every bit as grave as inflation, if not graver.

milesdividendmd

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #38 on: September 17, 2015, 02:34:07 PM »

The Fed will not normalize in our lifetimes. If you think they will, you're delusional about the US and global economy. September's dot plot says it all. The Fed just bought themselves another 12 months of unquestioned zirp policy, and probably even nirp policy. Just look at Japan.

This is an interesting theory. You are arguing that the global economy was in a race to zero rates and Japan just got there first.

I'm not sure I agree, but I do think the thing that the fed should be worrying about right now is disinflation and deflation, not inflation.

forummm

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #39 on: September 17, 2015, 02:47:09 PM »
Compounding interest works on debt too.  How much of our debt payments are we borrowing to keep up?
Do you mean the federal government? All of it plus more. That's what running a deficit means. We refi a bunch (billions) of that debt each week. The government can pay less than a percent interest on a lot of it though (the short term stuff). On average the weighted interest rate for all Treasuries outstanding is a bit over 2%.
And given that the rates internationally are a percent or two higher, I don't understand why we don't refi those within the US (maybe for a percent higher) and only owe our public.  Can someone explain why.

You're asking why we don't only allow domestic investment in Treasuries?  Well, you've identified one reason - it would cost more.  But I don't really understand the underlying thought - what advantage do you think the US would get from restricting the market?
No, that is not what I am asking.  If you separate the money owed in the US into domestic and international, we pay more on the international market (or at least we did about five years back).  My question is why don't we offer more (closer to international rates) to get the money going to our citizens, not out of our country.

Are you talking about Treasuries?  I've also never heard that claim before.  Treasury bonds are bought on a competitive market, so if there's any difference in the rates received by domestic holders and international holders, then it's likely because of a difference in average maturity of the bonds held.
There are a ton of issues at play. Restricting buyers of Treasuries to US buyers would raise costs for the government. The new US buyers would have to forgo buying some other asset--so international buyers would just go buy those instead. And those other assets would have a higher return because there would be fewer buyers for them. So it's essentially enriching foreign buyers at the expense of the Treasury.

It really doesn't matter who buys our Treasuries. The interest rates are incredibly small. We're happy to borrow their money for almost nothing. The 6 month Treasury bought today yields 0.14%. Peanuts. And the bonds aren't callable, so foreigners can't do anything to us except wait until maturity to get their money back or sell it to someone else who can do the same.

Frugal D

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #40 on: September 17, 2015, 02:52:08 PM »

The Fed will not normalize in our lifetimes. If you think they will, you're delusional about the US and global economy. September's dot plot says it all. The Fed just bought themselves another 12 months of unquestioned zirp policy, and probably even nirp policy. Just look at Japan.

This is an interesting theory. You are arguing that the global economy was in a race to zero rates and Japan just got there first.

I'm not sure I agree, but I do think the thing that the fed should be worrying about right now is disinflation and deflation, not inflation.

We agree on deflation being the risk. I don't think the broader race to zero was really in play when Japan began - that was an isolated function of their own economy. But it is now certainly in play and includes every economy.

Aphalite

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #41 on: September 17, 2015, 03:03:40 PM »
This is an interesting theory. You are arguing that the global economy was in a race to zero rates and Japan just got there first.

I'm not sure I agree, but I do think the thing that the fed should be worrying about right now is disinflation and deflation, not inflation.

We agree on deflation being the risk. I don't think the broader race to zero was really in play when Japan began - that was an isolated function of their own economy. But it is now certainly in play and includes every economy.

Certainly it makes sense that zero rates would prevail eventually in a mature economy, but I think rates would only stay zero on two conditions
1) population stagnation or decrease
2) lack of innovation (whether it be new products, more efficient system/processes, or technology advances)

Japan and much of Europe suffers from 1), but not necessarily 2). The problem compounding Japan's economic troubles is that their capital markets were significantly inflated 20 years ago, and it's taken a long time to burn off. I don't see the US as having problems 1 or 2, which means that growth will come sooner or later, and with that, inflation and a pick up in interest rates once more.

milesdividendmd

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #42 on: September 17, 2015, 03:12:00 PM »
It's tough to know.

The dollar is already very strong which creates a tremendous headwind for our economy.

If we raise rates and no one else does, the dollar becomes relatively stronger and so does the headwind and growth becomes constrained.

We are iintertwined with Europe and Japan and China, so if they are constrained, then this effects us too.

I get the "new normal" argument, but it's just such a complex and unprecedented time economically, that accurately guessing the future becomes impossible, as far as I can see.

wienerdog

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #43 on: September 17, 2015, 05:25:58 PM »
These general and non specific statements of paranoia tell us more about your emotional state than your thoughts.

You are good.  What is my emotional state and who is us or do you mean you?

milesdividendmd

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #44 on: September 17, 2015, 06:02:43 PM »
Im guessing you are frustrated, and angry that the country is led by politicians who don't reflect your personal values.

Frugal D

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #45 on: September 17, 2015, 06:56:20 PM »
This is an interesting theory. You are arguing that the global economy was in a race to zero rates and Japan just got there first.

I'm not sure I agree, but I do think the thing that the fed should be worrying about right now is disinflation and deflation, not inflation.

We agree on deflation being the risk. I don't think the broader race to zero was really in play when Japan began - that was an isolated function of their own economy. But it is now certainly in play and includes every economy.

Certainly it makes sense that zero rates would prevail eventually in a mature economy, but I think rates would only stay zero on two conditions
1) population stagnation or decrease
2) lack of innovation (whether it be new products, more efficient system/processes, or technology advances)

Japan and much of Europe suffers from 1), but not necessarily 2). The problem compounding Japan's economic troubles is that their capital markets were significantly inflated 20 years ago, and it's taken a long time to burn off. I don't see the US as having problems 1 or 2, which means that growth will come sooner or later, and with that, inflation and a pick up in interest rates once more.

Interesting you don't see 1 or 2 happening. I stumbled upon this article shortly after I saw your post.

http://seekingalpha.com/article/3517306-why-fed-rate-hikes-are-truly-laughable-but-the-world-isnt-laughing

nobodyspecial

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #46 on: September 17, 2015, 08:26:20 PM »
It would be pretty hard to "hide" high inflation conditions simply by reporting it as being very low.
But easy to switch which price index you report, to decide to leave out tax, fuel and housing costs and to adjust the mix of goods and services you include.

beltim

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #47 on: September 17, 2015, 08:43:56 PM »
It would be pretty hard to "hide" high inflation conditions simply by reporting it as being very low.
But easy to switch which price index you report, to decide to leave out tax, fuel and housing costs and to adjust the mix of goods and services you include.

Huh? The government reports the same sets of data every time.  They have different indices to increase accuracy for different uses.  As an example, energy costs are left out of some measures because energy prices are volatile, and for some purposes that's useful.  I don't know what you're talking about with the tax and housing nonsense.

nobodyspecial

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #48 on: September 17, 2015, 09:31:52 PM »
Huh? The government reports the same sets of data every time.  They have different indices to increase accuracy for different uses.  As an example, energy costs are left out of some measures because energy prices are volatile, and for some purposes that's useful.  I don't know what you're talking about with the tax and housing nonsense.
The government uses RPI and CPI, the differences between them is upto 1.5% which is somewhat significant when "inflation" is 0.1%.
It then switched index linked government pensions from RPI to the lower CPI.
In the last change to the basket in 2012, gym memberships were removed and tablet computers added, internet access was added and cable tv removed - conveniently  everything which got more expensive was removed and things that got cheaper were added.

The cost of fuel, housing and tax increases are left out of the consumer price index because as we all know, increases in these have no real impact on people's budget.
 

beltim

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Re: It's just .25%, what's the big deal? (Fed policy)
« Reply #49 on: September 17, 2015, 11:13:01 PM »
Huh? The government reports the same sets of data every time.  They have different indices to increase accuracy for different uses.  As an example, energy costs are left out of some measures because energy prices are volatile, and for some purposes that's useful.  I don't know what you're talking about with the tax and housing nonsense.
The government uses RPI and CPI, the differences between them is upto 1.5% which is somewhat significant when "inflation" is 0.1%.
It then switched index linked government pensions from RPI to the lower CPI.
In the last change to the basket in 2012, gym memberships were removed and tablet computers added, internet access was added and cable tv removed - conveniently  everything which got more expensive was removed and things that got cheaper were added.

The cost of fuel, housing and tax increases are left out of the consumer price index because as we all know, increases in these have no real impact on people's budget.

I hadn't heard of RPI and googling shows it to be used in the UK, which explains why.  I can say that your complaints are not true in the US measures of inflation.