The Fed and Inflation

[43st]

So Bernanke say's inflation is a concern.. but the key interest rate is at 2%?!?! If inflation is a concern then shouldn't the key interest rate would be 12% or higher?

The Return of Inflation article.

 

[LegendKiller]

Originally posted by: 43st
So Bernanke say's inflation is a concern.. but the key interest rate is at 2%?!?! If inflation is a concern then shouldn't the key interest rate would be 12% or higher?

The Return of Inflation article.

I would agree to a certain extent that the rates should be higher to fight off inflation. However, it isn't easy lending that's driving the current inflation, it's commodity bubbles.

 

[43st]

Well yeah... but that's because too much money is in the market for too few resources.. which is inflation basically. If the key rate was 12%-15% there be far less cash on the market I'd guess.

 

[Engineer]

Originally posted by: 43st
Well yeah... but that's because too much money is in the market for too few resources.. which is inflation basically. If the key rate was 12%-15% there be far less cash on the market I'd guess.

and probably far fewer people working too....not to mention a crushing of the stock market (which has really flatlined for over 3/4 of a decade as it is).

 

[LegendKiller]

Originally posted by: 43st
Well yeah... but that's because too much money is in the market for too few resources.. which is inflation basically. If the key rate was 12%-15% there be far less cash on the market I'd guess.

Too much money? The flow of capital into housing and commodities are more from pension funds and banks with actual capital (not debt) than anything else. Not to mention the completely exogenous factors such as food inflation due to ethanol, raising populations, and contraction of certain resources.

This isn't a simple monetary play that can control things. Otherwise the Euro countries would have their inflation in complete control, and they don't.

 

[StageLeft]

Well, right now we're between a rock and an incoming sledge. The rate is for all intents and purposes at the bottom and cannot be dropped more. Unfortunately, the stock market hasn't gone up, unemployment is growing, credit crisis continues, and now inflation is running away. Inflation can be easily checked by jacking the rate, but then whatever is still moving will slow down.

I wouldn't be surprised if Bernanke has a nervous breakdown.

 

[yllus]

Eh, I wouldn't worry about Mr. Bernanke too much - he'll be fine. If Greenspan could come out of Black Monday with his facilities intact just a couple of months into his first term as Fed chairman, this shouldn't be all that much worse.

 

[soccerballtux]

I imagine they're going to let the financial sector cool off a bit more and get over their whole subprime mess before he moves interest rates up. That's why he's only been talking about inflation being a key concern, not acting on it yet.

I think right now he's testing the waters to see exactly how sure the markets are about future inflation. Sometimes as little as a word about fighting inflation can be enough to scare investors away from commodities back into other markets; for fear of losing money. Other times it won't do a thing. See historical examples during Jimmy Carter's presidency where Volker had jacked interests rates to the roof, tried restricting the money supply and letting the market sort out the interest rate (which hit 19-20% at times, only to fall back to 6% later)...and yet our country still experienced uncontrollable inflation. Then Jimmy Carter makes an appeal to the nation to put away the credit cards and stop spending, to stop consuming, and everybody DOES it and immediately the economy goes into a recession. So you see, the markets are incredibly fickle. We'll have to see the effect that this has. Dollar's already back up some from when I checked yesterday.

Since many investors are going long on things like oil and natural resources, I bet this'll scare them for a bit but it won't do anything to end the oil bubble. He's going to have to raise interest rates eventually; he just doesn't want to turn up the burner yet-- market wouldn't take it too well.

 

[Fern]

I think many different things can contribute to inflation, and not all them can/should be combatted with high interest rates.

High gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

I fear high interest rates will result in stagflation.

Fern

 

[soccerballtux]

Originally posted by: FernHigh gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

Sure it could, if it scares speculators away from commodities like oil that they've been flocking to lately (increasing the gas prices). If you've got an alternate theory I'd love to hear it.

 

[Genx87]

Originally posted by: soccerballtux

Originally posted by: FernHigh gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

Sure it could, if it scares speculators away from commodities like oil that they've been flocking too lately (increasing the gas prices). If you've got an alternate theory I'd love to hear it.

Not sure how higher interest rates will scare speculators away. Are they borrowing money from the feds to fund these trades?

 

[LegendKiller]

Originally posted by: Genx87

Originally posted by: soccerballtux

Originally posted by: FernHigh gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

Sure it could, if it scares speculators away from commodities like oil that they've been flocking too lately (increasing the gas prices). If you've got an alternate theory I'd love to hear it.

Not sure how higher interest rates will scare speculators away. Are they borrowing money from the feds to fund these trades?

No, about the only thing it would do is reduce the profitability of banks funding the margin accounts through their balance sheet, which is a mix of debt/equity. However, that only works if the debt is being refinanced around the raise.

However, with 5% on the futures and 20:1 leverage on the BS with a good capital base, raising rates won't do much at all.

 

[Fern]

Originally posted by: soccerballtux

Originally posted by: FernHigh gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

Sure it could, if it scares speculators away from commodities like oil that they've been flocking to lately (increasing the gas prices). If you've got an alternate theory I'd love to hear it.

I see a lot of debate about how much commodity speculators actually add to the price of oil/gas. Some say a lot (around here), others say not much at all (Paul Krugman & the screaming Kramer person). So before we start *attacking* the economy and driving EVERYONE'S interest rates up (leaving less money for other purchases), let's make sure that speculators are indeed a problem.

The only way I can see higher interest rates causing oil to drop would be vis-a-vis a stronger dollar - if that were to occur from the interest rate increase.

However, the high price of oil also represents a huge drain on national wealth as most of that money is leaving our economy for foreign shores. This must be made up by increased GNP. Higher interest rates will only serve to slow any increase in GNP and therefore are not helpful IMO.

I think high interest rates are appropriate when overall there is too much demand chasing to few supply. If that were a problem, it has been resolved by higher gas prices as that leaves fewer dollars for other purchases, thus less demand.

Fern

 

[dmcowen674]

Most Americans are paying 32% interest

 

[soccerballtux]

Originally posted by: dmcowen674
Most Americans are paying 32% interest

lol

good to have you back dave

 

[soccerballtux]

Originally posted by: Fern

Originally posted by: soccerballtux

Originally posted by: FernHigh gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

Sure it could, if it scares speculators away from commodities like oil that they've been flocking to lately (increasing the gas prices). If you've got an alternate theory I'd love to hear it.

I see a lot of debate about how much commodity speculators actually add to the price of oil/gas. Some say a lot (around here), others say not much at all (Paul Krugman & the screaming Kramer person). So before we start *attacking* the economy and driving EVERYONE'S interest rates up (leaving less money for other purchases), let's make sure that speculators are indeed a problem.

The only way I can see higher interest rates causing oil to drop would be vis-a-vis a stronger dollar - if that were to occur from the interest rate increase.

However, the high price of oil also represents a huge drain on national wealth as most of that money is leaving our economy for foreign shores. This must be made up by increased GNP. Higher interest rates will only serve to slow any increase in GNP and therefore are not helpful IMO.

I think high interest rates are appropriate when overall there is too much demand chasing to few supply. If that were a problem, it has been resolved by higher gas prices as that leaves fewer dollars for other purchases, thus less demand.

Fern

shoot that's a good point.
I guess we'd all like to know how much of this is from speculation.

 

[dmcowen674]

Originally posted by: soccerballtux

Originally posted by: dmcowen674
Most Americans are paying 32% interest

lol

good to have you back dave

Are you not paying 32%?

I know many people that are including myself to Bank of America.

It wasn't orginally BOA but they have managed to buy up many of the small banks and cranked up my interest from 9% to 32%.

 

[43st]

Originally posted by: Genx87

Originally posted by: soccerballtux

Originally posted by: FernHigh gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

Sure it could, if it scares speculators away from commodities like oil that they've been flocking too lately (increasing the gas prices). If you've got an alternate theory I'd love to hear it.

Not sure how higher interest rates will scare speculators away. Are they borrowing money from the feds to fund these trades?

Do you believe in speculators? Free market advocates usually deny the existence of speculation all together, since the free market is a perfect entity.

 

[dmcowen674]

Originally posted by: 43st

Originally posted by: Genx87

Originally posted by: soccerballtux

Originally posted by: FernHigh gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

Sure it could, if it scares speculators away from commodities like oil that they've been flocking too lately (increasing the gas prices). If you've got an alternate theory I'd love to hear it.

Not sure how higher interest rates will scare speculators away. Are they borrowing money from the feds to fund these trades?

Do you believe in speculators?

Free market advocates usually deny the existence of speculation all together, since the free market is a perfect entity.

Including Warren Buffet

6-25-2008 Warren Buffet: Speculation Has Nothing to Do With Oil Prices

Warren Buffet finally says what we have all been thinking. The notion that speculators are driving up the price of oil is a sham. It looks like economics and supply vs. demand factors are the good old fashioned cause of high gas prices.

Buffett dismissed suggestions that "speculators" are responsible for the high price of oil, saying energy prices are being driven solely by supply and demand.

 

[StageLeft]

Originally posted by: dmcowen674

Originally posted by: soccerballtux

Originally posted by: dmcowen674
Most Americans are paying 32% interest

lol

good to have you back dave

Are you not paying 32%?

I know many people that are including myself to Bank of America.

It wasn't orginally BOA but they have managed to buy up many of the small banks and cranked up my interest from 9% to 32%.

WTH are you paying 32% on? Even most ghetto-fabs maxed out on their credit cards don't have rates that high. I belive that is flirting with illegality (since lenders have a legally-constrained max they can have rates at).

My cards are at 10-12% right now but I'm paying 0% on them because I am not carrying a balance. Credit Cards are like gasoline: they have their purposes but if not used correctly you end up with an explosion or a big fire that does a lot of damage. I find that with the rates they lend at and the paltry, pitiful points all of them give (even those with good rewards switch up later in the ole' bait & switch), they're hardly worth bothering with at all.

EDIT: thissays no legal limit. I was sure there was one...

 

[StageLeft]

Originally posted by: dmcowen674

Originally posted by: 43st

Originally posted by: Genx87

Originally posted by: soccerballtux

Originally posted by: FernHigh gas prices will drive inflation up, not excess demand. High interest rates won't do anything to lower gas prices.

Sure it could, if it scares speculators away from commodities like oil that they've been flocking too lately (increasing the gas prices). If you've got an alternate theory I'd love to hear it.

Not sure how higher interest rates will scare speculators away. Are they borrowing money from the feds to fund these trades?

Do you believe in speculators?

Free market advocates usually deny the existence of speculation all together, since the free market is a perfect entity.

Including Warren Buffet

6-25-2008 Warren Buffet: Speculation Has Nothing to Do With Oil Prices

Warren Buffet finally says what we have all been thinking. The notion that speculators are driving up the price of oil is a sham. It looks like economics and supply vs. demand factors are the good old fashioned cause of high gas prices.

Buffett dismissed suggestions that "speculators" are responsible for the high price of oil, saying energy prices are being driven solely by supply and demand.

Well, I'd love to hear him explain how 9% increase in a single day two weeks ago was based on real fundamentals.

 

[dmcowen674]

Originally posted by: Skoorb
My cards are at 10-12% right now but I'm paying 0% on them because I am not carrying a balance. Credit Cards are like gasoline: they have their purposes but if not used correctly you end up with an explosion or a big fire that does a lot of damage. I find that with the rates they lend at and the paltry, pitiful points all of them give (even those with good rewards switch up later in the ole' bait & switch), they're hardly worth bothering with at all.

EDIT: thissays no legal limit. I was sure there was one...

That's right. I was current until I got laid off late last year.

I did what I had to do, paying Mortgage first, car second etc.

I got a job in January. I had three credit cards and my wife had two.

I got behind on two of mine and behind with one of hers.

We both got notices by the cards that we were not behind on and actually had zero balances that they both were cancelled because we were in "Universal default" with our other cards.

One of my credit card companies worked with me. Although they closed the account, the payments are reasonable. The other company (Bank of America) has been and continues to treat me like crap and my wife worse.

It is clear how companies treat women a whole lot worse than men, it's disgusting.

I have retained legal and bank counsel now as Banl of America left us no choice. They even would not even accept payment. They would rather go to court because they and their lawyers can make even more money that way.

The whole system is a scam and sham.

There used to be usery laws but they were repealed by the Bush administration 4 years ago. This is what you get.

 

[StageLeft]

That's unfortunate, but you did know going in that these companies are legalized loan-sharks, right? The reason you used them to pay your mortgage and other bills is because presumably you had no other choice. Since they are not public entities there to prop up in times of need like unemployment insurance or medicaid, should you really be going along with what you know to expect and then souring over it after the fact?

 

[ebaycj]

Originally posted by: dmcowen674

Originally posted by: Skoorb
My cards are at 10-12% right now but I'm paying 0% on them because I am not carrying a balance. Credit Cards are like gasoline: they have their purposes but if not used correctly you end up with an explosion or a big fire that does a lot of damage. I find that with the rates they lend at and the paltry, pitiful points all of them give (even those with good rewards switch up later in the ole' bait & switch), they're hardly worth bothering with at all.

EDIT: thissays no legal limit. I was sure there was one...

That's right. I was current until I got laid off late last year.

I did what I had to do, paying Mortgage first, car second etc.

I got a job in January. I had three credit cards and my wife had two.

I got behind on two of mine and behind with one of hers.

We both got notices by the cards that we were not behind on and actually had zero balances that they both were cancelled because we were in "Universal default" with our other cards.

One of my credit card companies worked with me. Although they closed the account, the payments are reasonable. The other company (Bank of America) has been and continues to treat me like crap and my wife worse.

It is clear how companies treat women a whole lot worse than men, it's disgusting.

I have retained legal and bank counsel now as Banl of America left us no choice. They even would not even accept payment. They would rather go to court because they and their lawyers can make even more money that way.

The whole system is a scam and sham.

There used to be usery laws but they were repealed by the Bush administration 4 years ago. This is what you get.

McOwen, It seems like you lose your job at least twice a year. Perhaps you should look into the "payment protector plans" they offer for credit cards, that cover your minimum payments if you become unemployed.

Or perhaps you should look into why you are getting fired / laid off so often.