• ThrowawayOnLemmy@lemmy.world
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    1 year ago

    Frankly it was ridiculous how low our interest rates were for how long, a correction was absolutely needed. What’s insane is that the current rates haven’t had near the impact the fed probably expected or hoped for. Which is crazy because everyone I know is feeling the effects.

    But this is also literally the first time in my life that I’ve seen an interest rate above 1% on my bank savings, so that’s kinda neat.

    • sylver_dragon@lemmy.world
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      1 year ago

      Ya, the whole article read as: Investors are addicted to cheap money.
      Of course banks and investors want lower interest rates, that’s how they make money. When rates are higher, fewer people take on debt, which means less money for the banks. And investors have higher borrowing costs, so they make less money. Sadly, this also sucks for the average person, as our credit is also more expensive. However, we can take a look over at Turkiye for the counter-factual plan. Erdogan was nice enough to run an economic experiment for the world on what happens when you cut interests rates during inflation. The result of that experiment has been rather insane inflation… But hey, it got him re-elected. So, that was nice (for him).

      Ultimately, higher interest rates are kinda needed and probably here for a while.

  • Fixbeat@lemmy.ml
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    1 year ago

    Yeah, I don’t really understand why they keep raising rates. It’s just another form of inflation for consumers.

    • Not_Alec_Baldwin@lemmy.world
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      1 year ago

      Bank profits inflate the money supply.

      If banks hold 100% of the money and lend it all out x10 (fractional reserve) and earn 1% interest, the money supply is growing by 10% per year.

      That’s inflation. All that money goes to the banks.

      Edit: that’s 1% on top of whatever they have to pay for the money from the fed, so 7% rate plus 1%, or whatever.

      That doesn’t even account for the stock market and other speculative devices.

      When business and the wealthy class get richer, they want to get even RICHER. Prices rise. Which drives record profit, which makes rich people wealthier, which causes the cycle to repeat.

      Raising interest rates is SUPPOSED to make people uncomfortable and stop spending. It’s not working yet, because literally EVERY INCENTIVE IN OUR SOCIETY is pushing people to spend spend spend.

      There is no functional market force driving down housing costs, food costs, or education costs. Unchecked capitalism can’t work.

      We just need proper incentive structures and regulation. But seeing as nobody has the guts to start figuring that out, the only lever we have is interest rates.

      So they’ll keep going up until something breaks.

      • Dienervent@kbin.social
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        1 year ago

        If banks hold 100% of the money and lend it all out x10 (fractional reserve) and earn 1% interest, the money supply is growing by 10% per year.

        You’ve got it backwards.

        Banks hold other people’s money and use it to issue loan. It’s the issuance of loans that creates money. The fractional reserve doesn’t magically multiply the money. It just (in a roundabout way) allows banks to loan up to that multiplier of money to people. But that only works if there’s people who want to borrow that money.

        If a bank earns 1% interest, that doesn’t grow the money supply. It transfers money from the people that borrowed the money to the bank which then uses it to pay executives, shareholders and employees (in that order of priority).

        The higher the interest rates, the less money people can afford the borrow, the more the money supply shrinks.

        Banks HATE high federal reserve rates, because that means people don’t borrow as much which means they don’t make as much money.

        When business and the wealthy class get richer, they want to get even RICHER. Prices rise. Which drives record profit, which makes rich people wealthier, which causes the cycle to repeat.

        This can only happen in a poorly regulated environment where the rich setup monopolies or oligopolies. Otherwise they’d lose all their customers if they raise prices.

        We just need proper incentive structures and regulation. But seeing as nobody has the guts to start figuring that out, the only lever we have is interest rates.

        I think you’re just speaking for yourself here. Before you start spreading misinformation on the internet, maybe you should find the guts to actually figure out what you’re talking about.

        High federal reserve rates can make things difficult for banks and that might be why the CEO of JP Morgan is butt hurt right now.

        Want to deal with inflation? Raise interest rates.

        Want to really improve the population’s purchasing power? Break up the monopolies and oligopolies.

        • ryannathans@aussie.zone
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          1 year ago

          One caveat, didn’t the fed remove reserve requirements during covid? I haven’t seen them added back. I think we still have zero reserve banking…

        • Not_Alec_Baldwin@lemmy.world
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          1 year ago

          I actually don’t disagree with most of what you’re saying. I’m mostly pro-capitalist but anti-crony and anti-corruption which it sounds like you are too.

          Maybe I’m just misunderstanding, so I’ll try and clarify:

          If a bank earns 1% interest, that doesn’t grow the money supply.

          X$ exists.

          Banks loan out 10*X$ (or whatever).

          The loaned money is debt and so doesn’t change anything because the cash and the liability counter each other.

          The bank charges Y$ in interest.

          After the debt is repaid, the bank has X+Y$

          You’re saying that because the Y$ comes from somewhere, it’s not inflation. However as banks are profitable, they clearly have more money left after paying salaries, wages, costs, and dividends.

          As long a the money that the bank has is growing, the amount they can lend is growing which means the pool of available money is growing.

          It might not be “real” money (I’m probably misusing the term “money supply”) but it doesn’t change the fact that more “money” is available.

          Raising interest rates means people borrow less which means banks make less money and grow slower. If this were to keep up eventually the banks would lose money and the amount of loans they could give out would decrease and the available money would decrease. Which might finally put an end to this rampant inflation.

          • Dienervent@kbin.social
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            1 year ago

            You’re describing profit, not money supply.

            Bank profits don’t cause inflation in the way you seem to say and bank profits are no different than any other company’s profits in terms of how they affect inflation.

      • FuglyDuck@lemmy.world
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        1 year ago

        One obvious solution that’ll never happen is simply getting rid of fractional reserve banking.

        Make it do they have to have it, to be able to loan it

        • Dienervent@kbin.social
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          1 year ago

          Make it do they have to have it, to be able to loan it

          The banks do have to have it to be able to loan it.

          Fractional reserve says that they’re not allowed to loan all of it.

          So if you deposit 100k at the bank and there’s a 10% fractional reserve. Then they’re only allowed to loan 90k.

          Now you might ask, so if the bank can only loan 90% of the money they have where does the money multiplier come from?

          If person A comes and deposits 100k, and the bank loans 90k to person B. Then there’s still only 100k in cash, but now there’s 190k in bank accounts.

          So every time someone comes in to deposit 100k, they loan out 90k. Once they’ve got 1,000k, they’ve loaned out 900k and keep 100k cash in reserve.

          The important difference here is that loan only happen when there’s a borrow. And there are strict regulations about how reliable those loans can be. Which is why they tend to require collateral.

          So, really when a bank has 1,000k in people’s account, it only has 100k in cash. But it also has 900k in houses, cars and furniture.

          The whole system ends up stabilizing the value of money because it is backed by real tangible things through the loaning and collateral system.

          I also think it helps to keep money at a stable but small rate of inflation (1-2%). Otherwise people will just hoard the cash instead of growing the economy in the form of investments. But I don’t know what the literature says on that topic, or how reliable that literature is, in practice.

          My point is, getting rid of the whole system just because it looks complicated to you seems like a terrible idea.

          Like our focus should be on breaking up monopolies, progressive taxation and a solid well funded social support system. I think it’s safe to leave the management of the money supply to the bean counters for now. It’s clearly not perfect but it’s not bad either.

        • lco@kbin.social
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          1 year ago

          Can’t do that. It would be anti-business and anti-investment and anti-growth. Or something. Better go tax the poor a bit more. That’ll fix it!

        • Not_Alec_Baldwin@lemmy.world
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          1 year ago

          I don’t like all of the fuckery the banks get up to. But even I’m willing to admit that this is a Pandora’s box situation… I’m not sure we can ever go back.

          It would be like trying to restore the gold standard. Just… How?

      • Mojojojo1993@lemmy.world
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        1 year ago

        Man / or woman ain’t wrong. System is designed to fail.

        Only way out is to destroy it and start again. To repeat the cycle

    • xkforce@lemmy.world
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      1 year ago

      Theyre raising rates because it is a way to limit the amount of money entering the system. Low rates have been feeding investers that have been driving up housing prices among other things. And the rate of inflation hasnt slowed down as much as it needs to. That suggests the amount of money the market requires is still significantly lower than the amount being added to the system.

    • Dark Arc@social.packetloss.gg
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      1 year ago

      I’m not sure what the other person’s talking about.

      It’s really simple. Companies borrow money to do projects that they can’t currently afford. When interest rates are low, you can start a lot more projects. When interest rates are high… those projects have more risk and need more immediate returns before your interest payments start hurting your profits.

      It’s kind of like 0% APR in the consumer world, “why buy later when I can buy now for basically free.”

      Of course, all that money companies use to start projects doesn’t immediately create the business to do the work … so the businesses doing that work previously can charge more, and the price to get them to do any work increases. That last part is the inflation…

      So… if you raise the interest rates, you kill the purchase orders, which lowers demand, and then lowers prices.

      That’s also why raising rates too much is a scary prospect, because you can literally stall out the economy because instead of too many companies trying to start projects too few companies are starting projects and people start getting laid off because there’s not enough work to go around.

      • hark@lemmy.world
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        1 year ago

        Low interest rates also hurt the working class. It’s a contributing factor to the massive increase in housing prices. No matter how things go, the rich will always win out at the expense of everyone else.

        • lemmyseizethemeans@lemmygrad.ml
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          1 year ago

          I don’t understand this logic… low interest rates means it’s easier to borrow, which most poor people have to do to get anything. I think most cars have monthly payments right? Rate goes up- payment goes up. Richard Wolff talks about this alot on the socialist program. But you’re right in saying the rich are not impacted. Because they generally have savings and benefit from high interest rates.

          • hark@lemmy.world
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            1 year ago

            It’s easier to borrow for rich people too, and they have a lot more money to borrow with, so they can pull out cheap loans and buy everything up. If rates are higher then the poor can’t afford current prices, but current prices were driven up by low interest rates. The rich and the poor borrow for different reasons. The poor borrow because otherwise they can’t afford the things, the rich borrow because it seems like a good investment. That’s how you get things like housing as an investment instead of as shelter.