Krugman on the Fed overreacting - Politics Forum.org | PoFo

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#15249136
"The story so far: Last year, as inflation began to accelerate, many people — myself included — wrongly minimized the risks, asserting that much of the inflation was transitory, the result of temporary kinks (such as disrupted supply chains) as we emerged from a pandemic economy. Over time, alas, inflation didn’t just rise; it broadened, spreading from a relatively narrow range of goods to much of the economy. It was hard to avoid the conclusion that the U.S. economy was running significantly too hot.

(Interest rates) are " up about two and a half percentage points, which is a lot by historical standards and well above the levels that prevailed on the eve of the pandemic; mortgage rates are higher than they’ve been since the 2008 financial crisis.

p These rate rises will surely cause a major economic slowdown, quite possibly a recession.

I’m hearing growing buzz, both from economists and from businesspeople, to the effect that the Federal Reserve — which clearly kept its foot on the gas too long last year — is now braking too hard in compensation. And the risks of an accident are growing.

What we can say is that the risk that the Fed is moving too slowly to contain inflation has declined, while the risk that high interest rates will cause severe economic damage has gone up — a lot."

https://www.nytimes.com/2022/09/29/opin ... ation.html

It's nice when they agree with me.
#15249167

the U.S. economy was running significantly too hot



Bullshit -- the U.S. economy isn't like that of Pakistan, or Turkey, with near-slave-labor and impressive GDP growth.

Are we conveniently forgetting the European energy tantrum, the NATO-Russia showdown, and all related shockwaves and *costs* for all of that -- ?



the risk that high interest rates will cause severe economic damage



Agreed.
#15249174
ckaihatsu wrote:
Bullshit -- the U.S. economy isn't like that of Pakistan, or Turkey, with near-slave-labor and impressive GDP growth.

Are we conveniently forgetting the European energy tantrum, the NATO-Russia showdown, and all related shockwaves and *costs* for all of that -- ?





Agreed.




So you agree with me, but need to do it disagreeably...
#15249176
late wrote:
So you agree with me, but need to do it disagreeably...



It's not a small matter -- I identified the war funding over an energy political meltdown, and its global economic-shockwave effects (and Trump's past trade war with China), and you want to *ignore* this aspect of current events -- ?

Feeling like pressing 'rewind' right about now -- ?


= D
#15249179
The FED is screwed up, and they are between the sword, the rock and the floor is made out of lava. Recession vs inflation, it seems we will end up getting both :lol: . Im just waiting to buy a house, I am salivating at the price drops. And with hurricane Ian here in FL, a whole bunch of people are going to flee the expensive insurance market I bet and people that moved here thinking they could simply teleconference to work are going to hit a reality check, FL is not always nice weather, it is expensive as fuck and companies are going to be using the "oh you don't want to come to work, fine don't come" as an excuse to secretly lay off a bunch of people for the recession. With china's economy/real state coming to a burst, and something almost as catastrophic in the UK, this next decade is going to be interesting.
#15249869
I think the Fed is being prudent, finally for a change.

They are very concerned about inflation.

It costs a huge amount of money for the Fed to lend out money to keep interest rates down.

This cost ends up being paid for in the form of inflation.


It's complicated to explain, but maybe it can be explained this way. Anytime a Central Bank (like the Fed) "expands" the money supply and overpays when buying new assets, it dilutes the total value of all the currency. Just as when a corporation issues sells new stock at a price below the current market price, it will dilute the worth of all the stock shares. When the Fed lends out money at a rate below the market rate, the debt they receive in return (which is counted as an asset) is worth less than the new money that they had to issue to lend out. Someone else out there is taking that money and receiving interest on some investment asset in the market. That has to be paid for from somewhere. (Actually it typically causes prices of all investment assets in the market to rise)

I'm not sure why those on the Left seem to be so in favor of government creating artificially low interest rates.
It seems kind of like a paradox.
#15249875
Puffer Fish wrote:
I'm not sure why those on the Left

seem to be so in favor of government creating artificially low interest rates.


It seems kind of like a paradox.



People of all stripes love low interest rates.

"Central banks are independent from politics, but are central bankers? In other words, does the Fed do more to juice the economy when one party controls the White House than the other? That's the question University of Michigan professor William Clark asks, and his answer is a statistically significant, though qualified, yes -- the conservative folks who tend to run central banks seem to prefer conservative politicians.

Let's consider the evidence. Rather incredibly, interest rates have fallen over the course of every Republican term and risen over the course of every Democratic term ever since the Fed became independent in 1951, excluding Dwight Eisenhower and Barack Obama, as the chart below shows. That's a hell of a coincidence."
https://www.theatlantic.com/business/ar ... ts/264164/

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