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Comment by mercy_dude | Hacker News Reader

There is a better way - raise the real rate. Cheap loans along with endless printing has basically made fiat useless as a medium to store value, the only reason fiat exists now is as a medium to exchange goods/services. Here the Fed has been buying over 100B of mortgage based securities a month. This got to stop. For all the talks about Wealth inequality, I don’t understand how politicians fail to understand this basic thing.

I hope ECB and other central bankers realizes how they are fucking up an entire generation before it’s too late.Negative rates is only going to make things worse.

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I don't think it's an issue of inflation. Inflation has been super low for the past decade or more. Everything else is cheap, it's just housing that's expensive. It's a combination of scarcity and speculation leading to more artificial scarcity. Make it less attractive for speculators and build more houses.

Inflation is extremely high: https://www.aei.org/carpe-diem/chart-of-the-day-or-century/

How do you take "inflation is extremely high" from that chart?

56% over 20 years is 2.25%ish per year.

Looks like inflation has spiked in the last few months in the US, but that's after a long period of fairly low inflation. Compared to the past century, it's not that extreme yet; the 1970s and 1980s had higher inflation[0]. And the high house prices are not something from just the past few months, so it's really not inflation that's causing it.

My personal experience is Netherland[1] where the period of low inflation still continues, and house prices have also been shooting up for quite some time. We sold our previous house for 25% more after 8 years, and our current house has increased 25% in value after only 4 years. And even before I bought my first house, I was dismayed at the ridiculous house prices and wanted to wait until the whole thing crashed. (It did crash shortly after we bought our first house in 2008, but even that barely hurt the value of our house.)

[0] https://tradingeconomics.com/united-states/inflation-cpi (click 'max' to see the full graph) [1] https://tradingeconomics.com/netherlands/inflation-cpi

How is the CPI a useful measure of inflation if it ignores the things people actually have to spend money on like housing and healthcare?

It wouldn't be, if it did that. Fortunately it doesn't ignore those. In the US CPI calculation, housing has around 42% weight, medical care around 9%. Source: https://www.bls.gov/cpi/tables/relative-importance/2020.htm

I think this is only rent? Most people don’t want to rent their whole life in the US

https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

It uses actual rents for renters and owner-equivalent rents for owners. This does not assume at all that people want to rent their whole life. (The main assumption it relies on is that owners do not systematically understate what they think their own house could be rented for.)

So as long as the interest rates stay extremely low then this hold true?

You don't pay for the house. You pay for the mortgage. The mortgage is accounted for in the CPI and man gets this tiring. The housing component of the CPI has always been 3% for decades. It's one of the few things dragging it up to 2%.

If you have a higher interest mortgage the value of the house goes down but you still have the same monthly payment.

>There is a better way - raise the real rate.

Ok, you decreased monopoly rents but you also raised the cost of everything that isn't a monopoly. You will now pay more interest on your car. Companies pay more interest and pass the cost of interest onto you through more expensive products and services.

The truth is that you didn't even make housing cheaper. You still pay $1000 per month for 30 years. Higher interest rates just mean more of your money goes to the bank in the form of interest payments rather than into home equity.

>Cheap loans along with endless printing has basically made fiat useless as a medium to store value,

I don't understand this logic. Fiat currency is created by the promise that someone will work for you. If you never redeem that promise it is worthless. You cannot store labor the same way you can store gold. All saving money does is create room for investments today. If those investments never happened then you saved for naught. You denied yourself of the value of your money and yet you have the audacity to blame others for it.

>I hope ECB and other central bankers realizes how they are fucking up an entire generation before it’s too late.Negative rates is only going to make things worse.

What negative interest rates do is force you to face the fact that you are not utilizing the promise and that money, just like grain decays over time. You are letting people sit unemployed unable to live up to their potential.

What "fucked up" an entire generation is the utilization of money as a time machine. Let's imagine a simple money system. $1 = 1 pound of grain. The grain standard. Grain decays over time. Therefore $1 appreciates exactly at the rate at which grain decays. The farmer storing grain has to pay the maintenance cost of holding onto it while the person with the money has none of the costs. Everyone will start hoarding money while they get to watch the real world decay. If you put a holding fee onto money that matches the decay rate of grain then people will be forced to spend their money on something that is more durable than grain like giant pyramids that survived for 4000 years.

In The Netherlands I don’t think this would make a big difference around the major cities as there is a huge housing shortage and this will stay the same at least for the next 10 years, probably more much longer.

Scarcity was always a problem. Even in 90s and early 00s there was a lot of posters about housing shortage. But prices we’re rather stable. In a healthy housing market, you expect the property values to not grow over real interest rate. Which was the case back then.

This would lead to a steep collapse of property prices and force new homeowners who have just scraped together enough for a deposit into negative equity. This would drive a lot of anger against it (all amplified by the media/ultrawealthy who would be furious too) even if it were the right thing to do long term.

The only time I could see this happening would be in the case the value of the dollar fell off a cliff due to externally triggered emergency.

Yeah this is the narrative that is always played every time there is a talk about even slightest increase in interest rate. When politicians and news media alike play this narrative this gives people signal that house prices can never go down. I know a couple who is one layoff away from defaulting their mortgage, but they bought a house with mortgage 60% of their income since they think housing prices can never go down.

Assuming you are able to afford your mortgage in the first place and want to live in the house for distant future, why is repricing in due to rate change a problem anyway?

Agreed. I've never understood this assumption that one is entitled to get something for nothing merely by virtue of owning a house. Investment is just another form of gambling dressed up in the garb of respectability..

The main problem which this won't solve is the lack of space. There is a little land in NL so you can't grow endlessly and new districts would also put additional burden on infrastructure. People want to live close to major transport connections and/or big cities. You just can't build more and faster without considering the whole picture.

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