Here's why this matters to you. When the Fed funds rate is at 10%, the mortgage rate is 13% or so. That says that the risk that you have is 3% above the risk free rate.
When the Fed funds rate is 0%, your mortgage rate is 3%, that same difference in the Fed Funds rate.
But wait, think of that like we think of absorption. If I have a capacity to absorb of 1L and can absorb 50% of a liquid, then I will break when 2L is poured. If I bring my absorption rate to 98%, then I now break at 50L. If the government can absorb at 99.99% rates and you absorb at 97% rates, they can absorb 10000L while you can only absorb 33L.
If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates. Why is politics so contentious? Interest rates are dropping.
The differential between mortgage rates and the federal funds rate is only driven in part by regulation. The rest is market forces and the perceived risk of rising inflation. If we had certainty on how inflation would change for the next 30 years, mortgage rates could be pushed to a negligible margin above the federal funds rate.
> If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates.
You haven't explained this assertion. I see it a different way. If we want consumer demand to decide how capital is invested, then we want more inflation. Inflation transfers wealth from creditors to debtors. Debtors spend their money, which indicates what's useful to produce. If we want a handful of bankers to make guesses (and often guess incorrectly) about what people will want to buy, then we want low inflation, transferring wealth from debtors to creditors.
The problem with (excessively) low inflation and supply-side economics in general is that the suppliers must make their choices with a decreasing level of information on what will be demanded. It's only through consumer demand and its pressure on supply that reveals what's important through market forces. Otherwise we may as well go back to central planning.
Note that I'm not advocating for fluctuating inflation. All parties benefit from stable inflation rates. Uncertainty is dead weight loss.
When the Fed funds rate is 0%, your mortgage rate is 3%, that same difference in the Fed Funds rate.
But wait, think of that like we think of absorption. If I have a capacity to absorb of 1L and can absorb 50% of a liquid, then I will break when 2L is poured. If I bring my absorption rate to 98%, then I now break at 50L. If the government can absorb at 99.99% rates and you absorb at 97% rates, they can absorb 10000L while you can only absorb 33L.
If you want the government to control every decision regarding money in the future, you want the interest rate to be as low as possible. If you want people to use free markets to decide where money flows, you want high interest rates. Why is politics so contentious? Interest rates are dropping.