What is "destablilizing overheating" of the economy
Oct 24, 2018 07:17:07 #
I just read about the feds raising of interest rates that if they moved too slowly in raising them that they risked "destabilizing overheating" of the economy. Does anybody know exactly what that is? I don't think I've ever lived through an economy that could be characterized in such a way. I can understand raising interest rates to avoid inflation, but overheating? I don't know what this is. Any enlightenment would be appreciated.
Oct 24, 2018 07:23:43 #
Oct 24, 2018 07:33:58 #
It's somewhat similar to going out on a date with a really good looking woman, usually referred to as hot. As a result, on experiences "destabilizing overheating". This also occurs in females, but they seem to be able to hide it better. Now, apply that to the economy.
--Bob
--Bob
SteveR wrote:
I just read about the feds raising of interest rates that if they moved too slowly in raising them that they risked "destabilizing overheating" of the economy. Does anybody know exactly what that is? I don't think I've ever lived through an economy that could be characterized in such a way. I can understand raising interest rates to avoid inflation, but overheating? I don't know what this is. Any enlightenment would be appreciated.
Oct 24, 2018 07:55:36 #
SteveR wrote:
I just read about the feds raising of interest rates that if they moved too slowly in raising them that they risked "destabilizing overheating" of the economy. Does anybody know exactly what that is? I don't think I've ever lived through an economy that could be characterized in such a way. I can understand raising interest rates to avoid inflation, but overheating? I don't know what this is. Any enlightenment would be appreciated.
Whatever it is I just hope they don't screw it up...
Oct 24, 2018 08:01:19 #
Oct 24, 2018 08:25:17 #
Oct 24, 2018 08:25:39 #
DMAC55 wrote:
I have no faith in Washington. Either party.
What party is the fed?
Oct 24, 2018 09:41:42 #
wrangler5
Loc: Missouri
It's what they say when they want to raise interest rates. Doesn't have to mean anything in particular.
Oct 24, 2018 10:13:27 #
Oct 24, 2018 10:52:16 #
The short answer is that the Fed is rabidly afraid of inflation. They see it under every rock, at the beach, in the forests, etc. That is their charter, as mandated by Congress.
They are wont to allow market forces work in anything longer term than tomorrow.
The Fed, with government-like powers, is a private bank, although it acts like a central bank (see Bank of England, etc.). They refuse to allow for more free market movement of interest rates, and tend to raise the Federal funds rate at the drop of a hat. When they do this, the prices of bonds and notes tend to rise. When this happens, money moves from market investments into bonds and notes, driving down stock prices.
This is more a kabuki theater than anything, though. The Federal government drives a constant deficit, and deficits cause inflation. The Fed pretends it doesn't exist until they deign that the economy needs cooling. Then they intervene at the most inopportune times.
They are wont to allow market forces work in anything longer term than tomorrow.
The Fed, with government-like powers, is a private bank, although it acts like a central bank (see Bank of England, etc.). They refuse to allow for more free market movement of interest rates, and tend to raise the Federal funds rate at the drop of a hat. When they do this, the prices of bonds and notes tend to rise. When this happens, money moves from market investments into bonds and notes, driving down stock prices.
This is more a kabuki theater than anything, though. The Federal government drives a constant deficit, and deficits cause inflation. The Fed pretends it doesn't exist until they deign that the economy needs cooling. Then they intervene at the most inopportune times.
Oct 24, 2018 10:53:16 #
Oct 24, 2018 13:22:21 #
SteveR wrote:
I just read about the feds raising of interest rates that if they moved too slowly in raising them that they risked "destabilizing overheating" of the economy. Does anybody know exactly what that is? I don't think I've ever lived through an economy that could be characterized in such a way. I can understand raising interest rates to avoid inflation, but overheating? I don't know what this is. Any enlightenment would be appreciated.
They use "overheating" to mean it is too active and creating inflation. They believe that the economy can grow too fast. It has been a feature of the internal culture of the "Fed" for many decades. They use the interest rate as brakes to slow things. And it is only one "school" of economics that believes this.
Oct 25, 2018 06:19:12 #
SteveR wrote:
I just read about the feds raising of interest rates that if they moved too slowly in raising them that they risked "destabilizing overheating" of the economy. Does anybody know exactly what that is? I don't think I've ever lived through an economy that could be characterized in such a way. I can understand raising interest rates to avoid inflation, but overheating? I don't know what this is. Any enlightenment would be appreciated.
The current excuse is to hurt the President by the deep state.
The raising is to slow or prevent inflation. Which was not happening yet the deep state raised rates anyway after 8 years of holding the rates artificially low. All it is doing right now is hurting the stock market by pulling money out of it to bonds etc.
Oct 25, 2018 06:37:44 #
Just a point of clarification: interest rates and bond prices move inversely. That is, when rates go up, the price of bonds goes down. This results in a lower value for a bond portfolio which, as you stated, results in flight to other investments. One of the problems is that higher costs of borrowing affect the profitability of companies, thus putting downward pressure on stock prices as well.
Bottom line, beware “irrational exuberance” and be especially frightened of the Fed. It’s an uncontrolled clumsy behemoth that can inadvertently screw up the economy and wreck your net worth.
Bottom line, beware “irrational exuberance” and be especially frightened of the Fed. It’s an uncontrolled clumsy behemoth that can inadvertently screw up the economy and wreck your net worth.
Oct 25, 2018 06:57:25 #
Whenever the stock market rises a lot in a very short time, it's always followed by a large crash. The economy itself cannot grow that fast, so any quick rise is wild speculation driving stock prices artifically high -- basically a fool & his money soon parting.
This was the cause of the 1987 crash (still by far the large Dow crash ever percentagewise), the crash of 2008-2009 -- both of which led to recessions. On the other hand, in 1996 the Alan Greenspan of the Fed pointed out the "Irrational exuberance" of the market, measures were taken to rein it in, and the market continued a slow & steady growth for another 4 years (until the the dotcom bubble crash of 2000 -- which did NOT lead to a recession, because of the care the Fed had taken to prevent it in the years leading up to it)
This was the cause of the 1987 crash (still by far the large Dow crash ever percentagewise), the crash of 2008-2009 -- both of which led to recessions. On the other hand, in 1996 the Alan Greenspan of the Fed pointed out the "Irrational exuberance" of the market, measures were taken to rein it in, and the market continued a slow & steady growth for another 4 years (until the the dotcom bubble crash of 2000 -- which did NOT lead to a recession, because of the care the Fed had taken to prevent it in the years leading up to it)
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