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Can someone explain why raising interest rates in recession helps?
Posted on 9/26/22 at 12:34 pm
Posted on 9/26/22 at 12:34 pm
I don’t consider myself the smartest guy, but I have degrees, certifications, etc.
How is this a good thing to slow mortgages, raise rents, tank the market, and increase debt during massive inflation?
Genuinely curious the justification and also why it’s tolerated, but that’s a bigger question I suppose
How is this a good thing to slow mortgages, raise rents, tank the market, and increase debt during massive inflation?
Genuinely curious the justification and also why it’s tolerated, but that’s a bigger question I suppose
Posted on 9/26/22 at 12:36 pm to ChunkyLover54
quote:
Genuinely curious the justification
Inflation
Posted on 9/26/22 at 12:37 pm to ChunkyLover54
You can't afford to buy anything on time (including w Credit Cars), so buying slows (demand). As demand falls, prices fall.
Posted on 9/26/22 at 12:37 pm to ChunkyLover54
Homes are overvalued because there was alot of demand with ultra-low interest rates. They're trying to weed out the borderline buyers to lower demand and allow prices to stabilize. That's the basic theory to my knowledge anyway.
Posted on 9/26/22 at 12:39 pm to ChunkyLover54
Because it discourages people from borrowing money, thereby reducing the amount of dollars in circulation. Only the idiots running our country didn't see this shite show coming.
Posted on 9/26/22 at 12:39 pm to ChunkyLover54
quote:
Can someone explain why raising interest rates in recession helps?
What do you care more about:
A recession or hyperinflation?
Posted on 9/26/22 at 12:47 pm to SlowFlowPro
quote:
A recession or hyperinflation?
Yeah we're going to experience hyperinflation during a global dollar shortage
Posted on 9/26/22 at 12:48 pm to ChunkyLover54
It doesn’t help. It’s meant to curb inflation, not help business.
Posted on 9/26/22 at 1:00 pm to ChunkyLover54
It doesn’t, it makes sure that they still get their money no matter what the situation is.
Posted on 9/26/22 at 1:07 pm to ChunkyLover54
It's not really necessary. Dems passed The Inflation Reduction Act so we can expect inflation to go way down.
Posted on 9/26/22 at 1:30 pm to samson73103
quote:
Because it discourages people from borrowing money, thereby reducing the amount of dollars in circulation. Only the idiots running our country didn't see this shite show coming.
They created it when Biden turned a strong economy that was energy independent into a green basket case full of printed money.
Posted on 9/26/22 at 1:31 pm to ChunkyLover54
quote:
Can someone explain why raising interest rates in recession helps?
That's the wrong way to ask it. Rates are usually raised in good economic times and lowered in bad ones. Raising/Lowering rates is just a fancy way of saying "removing/adding money to the economy".
The reason the question isn't good is because our rates being so low for so long, along with the Fed buying lots of debt, and then the federal government dropping ~$2T in cash into the economy within a 4-month period (stimmy checks, not even including PPP or expanding welfare benefits here) created a perfect storm for high inflation. Leaving rates low would have risked a likely hyperinflation scenario and then a near-total economic collapse.
"Inflation", among economists, is a measure of the value of the Dollar and that value is primarily determined by how many of them there are in the economy. In this way, the USD is a good just like a bag of flour or a mint, original edition of Action Comics #1. The more you have of a good, the less it costs because it becomes easier to get.
So the primary problem we have been facing is a metric frickton of Dollars in the market has created a shitload of inflation. The Fed had to decide between doing nothing and risking another Great Depression or raise rates and risk a likely Stagflation scenario. They chose the latter (it's like having to choose between losing two fingers or losing a whole arm, either way you're still losing).
Raising rates and ending the purchasing of securities drains money out of the economy, thus making the remaining money more valuable. Once the FedFund reaches ~3.4 at the end of this year, they'll re-evaluate on whether to pause on raising rates, and how long, before going for their 2023 goal of 3.8%.
Posted on 9/26/22 at 1:38 pm to Bard
Fed trying to attain their inflation target of around 2%. It's one of their goals.
This post was edited on 9/26/22 at 1:55 pm
Posted on 9/26/22 at 1:46 pm to Nawlens Gator
Its wrong to think of it as a direct help to a recession.
What it is, is a rather painful medicine administered to get one of the prime drivers of recession under control. You start moderating those underlying conditions, and recovery is possible.
The truth is, people have to pay for a long period of cheap credit given far too freely. Inflation has to be tamed, or else any economic growth is going to be devoured by just keeping up with the rate of inflation.
Once inflation is curbed, a real and managable baseline for growth can be established. At the same time, it'll also soak up the pool of excess dollars being hyper-injected into the econonmy. Instead of debt fueled growth, if a highly profitable company wants to expand or acquire or retool, it'll have to dip into its own profits more than before-- it can't just get bigger or renewed by using cheap credit.
What it is, is a rather painful medicine administered to get one of the prime drivers of recession under control. You start moderating those underlying conditions, and recovery is possible.
The truth is, people have to pay for a long period of cheap credit given far too freely. Inflation has to be tamed, or else any economic growth is going to be devoured by just keeping up with the rate of inflation.
Once inflation is curbed, a real and managable baseline for growth can be established. At the same time, it'll also soak up the pool of excess dollars being hyper-injected into the econonmy. Instead of debt fueled growth, if a highly profitable company wants to expand or acquire or retool, it'll have to dip into its own profits more than before-- it can't just get bigger or renewed by using cheap credit.
Posted on 9/26/22 at 2:12 pm to ChunkyLover54
Theory is to reduce demand. Most people borrow for homes, vehicles etc. The higher interest diminishes that and with the reduced demand should bring down prices. Econ 101 but its just not that simple especially with an administration that seems to be countering that lever on multiple fronts.
Posted on 9/26/22 at 2:19 pm to ChunkyLover54
Because you cannot make billionaires without recessions.
If we never had economic downturns playing the economy as a business itself wouldn't be such a lucrative venture.
If we never had economic downturns playing the economy as a business itself wouldn't be such a lucrative venture.
Posted on 9/26/22 at 2:24 pm to ChunkyLover54
Inflation can lead to a recession if it is sustained at a high level for an extended period of time. Inflation caused recessions are a product of an inflated money supply. Inflated money supplies are corrected in general by shrinking the supply and access to money through increased rates of interest by making it more difficult to borrow money.
Posted on 9/26/22 at 2:24 pm to ChunkyLover54
it also helps the elites that both parties represent. When you have high employment rates wages go up profits go down. Employees can demand higher wages because there is less people in the employment pool. Home vaules had been on the rise since 2008 then we got super low interest rates and they sky rocketed. Now they raise rates to slow growth. When we come out of this in a few years we will start the cycle over again. Housing inventory will be at all time lows because builders dont build when the demand is down and the rates are sky high. So when we start to climb out of this values of home will jump back up again becuase of demand and low inventory. It's either boom or bust the way the FED regulates our economy. Its the only way they know how and it benifits the elites the most.
Posted on 9/26/22 at 2:28 pm to ChunkyLover54
It doesnt help anything but put pressure on buying habits.....when you quit buying shite, prices fall.....and the economy goes to lovely shite.
This is Joe Bidens plan of economic excellence! What a dumb man!
This is Joe Bidens plan of economic excellence! What a dumb man!
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