What if your entire worldview was just because of near-zero interest rates?

I&#x27;ve been saying this for the last 5 years. People don&#x27;t realize how powerful the &#x27;money printer&#x27; is. All the money which exists in the system was created out of nothing and injected into the economy through a few specific channels (mostly as credit backed by debt). IMO, everything in modern society is influenced in some way by interest rates; even culture and morality. Money printing can distort the market pricing mechanism and distort all economic activities.<p>IMO, a low interest rate environment is about luck, first mover advantage and media exposure. A high interest rate environment is about value creation. IMO, as interest rates increase, many successful people of the past decade are going to wake up to a new reality; those who have the humility to understand that they were lucky will be able to adapt their strategy to suit the new environment but most will go out of business.<p>I believe that in this new high interest environment, some people who were previously unsuccessful will thrive while some who used to be successful will start failing. The majority of investors will not be able to escape the mindset that they should only invest in successful people (since that has worked consistently in the past) and they will end up chasing loss after loss and not understand why their proven strategy of track-record-based investing is no longer working.

The folks reading this are going to get the wrong message. They are going to believe that rising interest rates will magically make it so that the most highly valued companies are the ones that produce the most societal good. This may start to happen more to a certain extent, but it&#x27;s a totally false assumption.<p>The most valuable companies before and after this era of low interest rates were and continue to be monopolies. That&#x27;s what Warren Buffet invests in (Davita Dialysis, Exxon, Apple, rail lines ---&gt; all monopolies). That&#x27;s what Peter Thiel tries to invest in (Zero to One). That&#x27;s what successful Y Combinator companies ultimately strive to become.<p>Societal value creation is not the same as value creation to shareholders. The latter can be achieved by the former, but the former is not a requirement for the latter.<p>The question for many of the readers of HackerNews is whether their jobs (mostly as software engineers) ever needed to exist. The answer for many is going to be -- probably not. On the flip side of things, lowering wages for software engineers is going to enable many institutions and companies that do not operate as tech monopolies or startups to start to get some of the benefits of skilled software engineers!

I definetly think a lot of the startup world view is just a function of low rates.<p>Startups could run for decades with $billions in losses and only a passing focus on eventual profits.<p>All of those losses flowed into the bank accounts of big tech (via AWS credits, Google and Facebook Ads).<p>All of the high salaries, employee expectations and leverage in tech startups and big tech derive from that spigot of cheap money.<p>What if it was all just an illusion for a few decades? It’s going to be a bumpy readjustment when it’s all that most of us have known.

People who complain about extreme fed policy should look to congress. The inability of congress to address core economic and financial issues forces the feds hand.

Given that putting interest rates up is an artificial intervention into the market for money, what if your worldview is based around allowing financial institutions to extract rent by taxing people for setting up home?<p>Why is setting the price of money artificially - which gives free government money to financial institutions - better than the alternative: setting the base price of labour by guaranteeing people a job?<p>It would be better if we stopped talking about the false dichotomy of fiscal and monetary policy and started talking about stabilisation policy instead.

“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009”<p>This is like 9% compounded for 13 years, which is in line with historic averages.

I think the article brings up too many separate concepts without sufficiently tying them together.<p>One of the most basic concepts you have to accept to agree with the premise of the article is that the Fed kept interest rates low to transfer wealth to the wealthy.<p>&gt; After the Great Recession, the Federal Reserve instituted a zero or near-zero interest rate regime. The philosophy behind it was simple:<p>&gt; &gt; The Fed’s “strong and creative measures” would inflate stock prices, which would lead those holding stocks to feel wealthier and more confident, and then they’d spend a little more, and some droplets of this might trickle down to the people that are working in the real economy.5<p>Of note is the fact that the citation for this quote is some random dude Wolf Richter&#x27;s website. The guy&#x27;s a former car dealership manager, and that&#x27;s the extent of his financial background.<p>A much less sinister and simpler explanation exists: high inflation rates are bad for pretty much the entire economy regardless of level of wealth. We already saw this in action in the 1970s.<p>I also take issue with a lot of the numbered points in the article. These points seem to avoid the more nuanced multiple factors behind those specific developments:<p>1. Tech companies are flushed with cash because it&#x27;s the highest margin business out there. There was no such thing as software company profit margins in the olden days of corporate behavior.<p>3. The buyback graph didn&#x27;t show R&amp;D spending decreasing at all or otherwise being impacted by stock buybacks. The cited HBR article doesn&#x27;t directly link the lack of R&amp;D expenditures to stock buybacks. Aren&#x27;t there companies out there that have minimal R&amp;D expenses? S&amp;P 500 companies like Dollar General, Costco, Robert Half, and CBRE Group?<p>4. Isn&#x27;t the biggest reason to link CEO pay to stocks to avoid personal income tax? That&#x27;s just a tax efficiency issue.<p>5. Aren&#x27;t there other reasons why Vanguard is popular besides the popularity of stocks in general? I always thought it was because the Boglehead ideology spread and Vanguard&#x27;s low expense ratios proved to be attractive. I see this as &quot;passive versus active investing&quot; not &quot;investing in stocks versus investing in something else.&quot;<p>7. Who says FIRE isn&#x27;t productive? Where do you think those &quot;tech companies flush with cash&quot; got the cash from?

What if you&#x27;re just too young to remember a business cycle because you weren&#x27;t an adult or were still in college so were insulated from 2008?<p>Its funny to read all these takes from &quot;kids&quot; who think that all the fundamentals have totally changed at this point like the economy has turned some fundamental 180 degree turn and we&#x27;re heading back towards &gt;6% rates forever.<p>It hasn&#x27;t. The Fed is going to crash the economy into a brick wall to bring down inflation via raising unemployment (we&#x27;re probably still 6-12 months out) but then the Fed will slash rates in a panic and go &quot;oopsie&quot;. This will bring back yet another low interest rate &#x2F; cheap money period.<p>I suspect the next cycle will be shorter and a decade of ZIRP won&#x27;t happen again, but we&#x27;re going back to ZIRP again once the recession hits.

I just can’t take this person seriously. Clearly written by a non-expert and the questions&#x2F;ideas are, as a result, well-trodden ground without anything original to add.<p>Take this representative quote “It’s Jerome Powell’s world: never before have I seen markets move so erratically in response to a once-boring Jackson Hole conference. Actually, the first time I ever heard of this event was this year since some acquaintances of mine were trying to ‘trade’ it.”<p>So, essentially, this person had no clue what Jackson Hole means in the financial world but makes a huge judgement on past events, then says immediately they know nothing of the past and just learned of them this year. No analysis of market volatility around these events, just a blanket statement that makes them look foolish.<p>Basically they are now opening their eyes to the huge role central banks play in the economy.

I suspect near-zero interest rates for a decade also contributed to the political realignment of affluent suburbs trending Democrat. So long as the Fed would buy federal debt cheaply and there was no significant inflation, Democrats could advocate multi-trillion social programs while promising to maintain Reagan-era tax rates on even quite affluent folks.

&gt; <i>It became the new normal, and the generation that entered Wall St. during this time is now disoriented, for they “do not know a world without cheap money.” [...] Whenever people are humbled by the melting away of things they took for granted, now that’s a topic worth exploring.</i><p>I&#x27;m trying to figure out parallels and implications for <i>tech</i> jobs.<p>Where in tech jobs will be first to decide they need to &quot;rediscover the ways of our ancestors&quot;, and willing to pay to speed that up.

I&#x27;m old enough to remember in university economics class, the professor would joke about how financial media would closely watch press conferences that Alan Greenspan would give after FOMC meetings, down to watching the thickness of the briefcase to guess as to whether the fed funds rate (which determines interest rates) would increase or decrease.<p>I am happy rates have risen, and I hope they stay at a sane level more in line with historical values rather than the insane period of the past 14 years. As another commenter here points out, when rates are not-zero, business defaults back to value-creation, instead of other silly game-the-system metrics that have arisen in this time frame.<p>Of course it will be painful, both for a generation of younger people who have never experienced &quot;high rates&quot;, and also for the finance &quot;professionals&quot; who built reputations on nothing more than gaining access to easy-money and deploying them randomly to things which only rise in value because others also pumped in easy-money down the line. It may also address some of the woke-time-wasting initiatives at companies, as anything not actually adding value will be dropped.<p>The main thing will be to see if the Fed actually stays the course, or if the allure of the money-printer is too seductive and they decide to drop rates back down again even after (or worse, before) inflation is tamed. If so, then the currency will continue to debase until the crypto exit is inevitable.

Western economies are thoroughly capture by financiers and US dollar hegemony and in particular the petrodollar.<p>All of these converge to push up asset prices irrespective of actual productivity.<p>The world has had no option but to buy US debt and or non controlling stakes in US companies. All of this has allowed asset prices to explode while the productive economy and our standard of living has stagnated or declined.

The whole system is so dysfunctional, it&#x27;s no longer funny.<p>- fiscal policies (money printing)<p>- prevalence of bullshit jobs (70%+ of jobs are unnecessary&#x2F;harmful)[0]<p>- exploitation of nature &#x2F; future for profit motives of individuals<p>- systemic economic inequality<p>- subsidizing the most harmful things (oil, animal agriculture, plastics)<p>- agriculture based on degrading soils and spraying poisons<p>- health&#x2F;medicine focused on perpetual treatment instead of prevention of diseases<p>If it doesn&#x27;t work as it should, it&#x27;s always the money somewhere behind the curtain.<p>One can&#x27;t but think of the final chapters of the Hitchhiker&#x27;s guide to the galaxy, where administrative workers and phone headset cleaners hoard tree leaves, in an attempt to reconstruct the economic system (note to myself: read it again).<p>[0] <a href="https:&#x2F;&#x2F;libcom.org&#x2F;article&#x2F;phenomenon-bullshit-jobs-david-graeber" rel="nofollow">https:&#x2F;&#x2F;libcom.org&#x2F;article&#x2F;phenomenon-bullshit-jobs-david-gr...</a>

My friend that has been a general contractor for around ten years acts like it&#x27;s not even worth doing his job anymore now that interest rates are going up.

&gt; &quot;What if your entire worldview was just because of near-zero interest rates?&quot;<p>Worldviews typically include who we are, why we&#x27;re here, what purpose (if any) we have in life, etc. It seems strange to me that someone&#x27;s worldview could be thoroughly based on interest rates.

Can anyone explain to me why we don&#x27;t have a policy of &#x27;natural&#x27; or &#x27;equilibrium&#x27; interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face.<p>I&#x27;ll never forget my freshman year investment analysis professor angrily and incoherently (to us hungover, careless freshmen) ranting about QE and going out for chain-smoking-breaks. It&#x27;s so clear now.

My worldview was prior to near-zero interest rates but the bulk of my career has been in the 2010s. Mine was: you work hard and others and yourself recognize value. Heh ... it didn&#x27;t work during the last decade and it is my own naivete that led me to think that way. My view is purely anecdotal though. I know others had different experiences.<p>It took me a long time to learn that motivators for executives, shareholders, etc. were different than having a necessarily productive workforce. I can&#x27;t help but say this is just my own experience and what I read though: cheap money <i>seems</i> to be really influential. I worked in a place for a long time that kept buying other companies with access to cheap credit lines and plenty of willing investors. I am not sure if that correlates to how little we were producing ourselves (that is, if there was a corporate strategy of buying companies precedes a product strategy.) However, this strategy would immediately stop when interest rates would jump.<p>I am too scared to speculate though and only walk away with a better sense of when red flags like this start to raise. Maybe there will be different things to look out for though when these influences are not present. However, I am thinking that maybe the return to &quot;work hard and you&#x27;ll be seen&quot; will sort of come back again. Well, hopefully for myself it would. Seeing others recognize and value what I did is really encouraging.

This dude is complaining about the 1990s. Low interest rates are a factor behind a lot of trends in the startup world, but CEO stock pay, stock buybacks ect, a lot of this is 1990s era trends.

Just wait until we enter the ‘decades long workforce population decline’ period. Once GDP growth decreases by population shrinkage, investing will be fun again!

Print more and dump on the world strategy will end in the near future since big countries are planning to ditch trade in dollars. Funnily monster that the west created is about to eat it alive.

&gt; The 2010s were a decade that “disrupted everything but resolved nothing,” as Andy Beckett wrote, and I tend to agree.<p>These kinds of sentiments are great for drawing attention and might be true on a macro level, but I do not agree at all. Although there is currently a lot of nonsense going around, there are also great things going on if you look carefully.<p>For example, I think that electric cars do have their problems about battery minerals and such, but the idea that we can use solar and wind to locally put energy in the car is mind blowing. Some car makers, such as Lightyear, Sono Motors, and Aptera, are actually putting the solar panels on the car itself. Also, cars like the BYD Seal can drive 550 km &#x2F; 340 miles on one charge and go from 0-100 &#x2F; 0-60 in about 5 seconds for 35 000 dollars.<p>Furthermore, SSDs and processors have come a long way since the start of 2010. EUV systems are producing chips below 10 nm. Partially due to this, HDDs cost less than a cent per GB nowadays while SSDs are at about 5 cents per GB according to <a href="https:&#x2F;&#x2F;diskprices.com" rel="nofollow">https:&#x2F;&#x2F;diskprices.com</a>. The Crucial 1 TB costs 53 dollars! I&#x27;ve looked in my order history and payed about the same for a 120 GB SSD in 2016.<p>Also, note that GitHub was founded in 2008. Although I&#x27;m not so optimistic about the vendor lock-in taking place, I am very optimistic about the quality of the work. For example, Rust appeared for the first time in 2010!<p>Finally, what also makes me optimistic about the future is what Michael Dell stated nicely in a commencement speech (<a href="https:&#x2F;&#x2F;youtu.be&#x2F;sIyGA1MlbwY" rel="nofollow">https:&#x2F;&#x2F;youtu.be&#x2F;sIyGA1MlbwY</a>). He said he is optimistic about the future because he has never met such an involved younger generation who care about the world and care about changing it. I think this also holds more generally, for example, since 2010, climate change is taken much more seriously (for example, see <a href="https:&#x2F;&#x2F;news.gallup.com&#x2F;poll&#x2F;1615&#x2F;environment.aspx" rel="nofollow">https:&#x2F;&#x2F;news.gallup.com&#x2F;poll&#x2F;1615&#x2F;environment.aspx</a>).<p>So no, I do not agree at all with the &quot;resolved nothing&quot; sentiment. A lot of bad stuff happened for sure, but a lot of great stuff happened too.

Is the current cadre of politicians trained to set policy under high interest rate? I ask of those from main economies.

The central banks are controlling the rates, but they don&#x27;t have so many freedom in doing so then we think. They need to think about inflation projection, consumer spending, geopolitical factors,... They seems more responding to the environment than dictating the market.

&gt; The point of this silly question is to consider just how much of an outsized role the Fed now holds.<p>Among the overarching points of the U.S. Constitution is that people who wield vast power stand for election.<p>The Federal Reserve urinates all over this point.<p>Reforming the Federal Reserve is sine qua non IMO if there is to be any improvement.

The ability to just buy replacements for things instead of repairing them might be coming to an end. A focus on reparability and reusability for physical goods could be making a comeback.

Perhaps Austrian Economics has something to it after all:<p><a href="https:&#x2F;&#x2F;m.youtube.com&#x2F;watch?v=d0nERTFo-Sk" rel="nofollow">https:&#x2F;&#x2F;m.youtube.com&#x2F;watch?v=d0nERTFo-Sk</a>

Borrowing money can be expensive. It&#x27;s also how we get to the next level.

The old economic world may be leaving us, but its pathologies stubbornly remain.