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Bonds already issued were bought by people like you and me and pension funds who will now be paid many years of below-market interest. It's also embedded into t
by pishpash 8y ago
Bonds already issued were bought by people like you and me and pension funds who will now be paid many years of below-market interest. It's also embedded into the inflated pricing of every other asset that will have low expected returns going forward. No matter how you seem to want to do funny accounting, you're still paying that cost.
- pas 8y agoYields (rates) are pretty much directly correlated with inflation. Low rates, low inflation. The real return is probably the same.
- pishpash 8y agoWhich is not true at all. US real yield has gone from less than -1.5% on the short end [1] to around 1% recently across the yield curve. Historically it was around 2%. Not only that, the term premium is still likely negative [2]. The financial repression was real. [1] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2013 https://www.treasury.gov/resource-center/data-chart-center/i... (Note that there was a further 80 basis point spread between nominal overnight rates and the nominal 5 year rate, so real overnight rates were really really negative.) [2] https://fred.stlouisfed.org/series/THREEFYTP10 https://fred.stlouisfed.org/series/THREEFYTP10
- pas 8y agoThis does not mean that without low interest rates things would be better. (And I'm not saying Greenspan et al. handled the early 2000s well. But I'm also not convinced that the economy's set point is the federal funds rate. I think it's just an aspect, and business fundamentals - like real aggregate demand, which is much more sensitive to disposable income than to interest rates - are much more important for growth.)