3 ms·

>unnaturally low interest rates (a gift from central banks to those with investments and access to low rates) Can you explain what an "unnaturally low" interes

>unnaturally low interest rates (a gift from central banks to those with investments and access to low rates) Can you explain what an "unnaturally low" interest rate is? The Fed sets the overnight rate at which banks lend reserves to each other. While it is a benchmark for many other interest rates, anyone, anywhere can lend and/or borrow at any rate of their choosing. If rates are unnaturally low, why aren't people charging more? Why are they leaving money on the table? Side note: it's a funny thing to me, that the vast majority of American citizens are net debtors, yet we complain about low rates and inflation. Most people don't understand what's good for them.

ummonk 7y ago
The Fed also controls treasury yields via quantitative easing.
dharma1 7y ago
Sure, interest rates set by most major central banks have been at historical lows, between 0% and 2% for the last 10 years, since the last crisis. And it doesn’t look like it’s possible to raise them much in the next few years - the economy has become accustomed to low rates and can’t take a rate hike. Nor will it be possible to lower them much (since they already close to zero) in case there is another downturn and the central banks need to stimulate. I don’t think we have ever seen such a long period of low rates before, so this is relatively uncharted waters. Inflation of consumer goods, which central banks have a mandate to track, is still relatively low, mostly thanks to low oil prices. But if you look at the prices of financial assets, you’ll see a lot of “inflation” hiding there thanks to money printing and low rates of the past 10 years.
- eru 7y ago
  Actually, real interest rates on eg American government bonds haven't been that low by 20th century standards. We saw much more negative real interest rates before. Especially after taxes. https://www.minneapolisfed.org/article/2016/real-interest-rates-over-the-long-run https://www.minneapolisfed.org/article/2016/real-interest-ra... Nominal interest rates however are very low, because nominal GDP growth is low.

ummonk 7y ago

The Fed also controls treasury yields via quantitative easing.

dharma1 7y ago

Sure, interest rates set by most major central banks have been at historical lows, between 0% and 2% for the last 10 years, since the last crisis. And it doesn’t look like it’s possible to raise them much in the next few years - the economy has become accustomed to low rates and can’t take a rate hike. Nor will it be possible to lower them much (since they already close to zero) in case there is another downturn and the central banks need to stimulate. I don’t think we have ever seen such a long period of low rates before, so this is relatively uncharted waters. Inflation of consumer goods, which central banks have a mandate to track, is still relatively low, mostly thanks to low oil prices. But if you look at the prices of financial assets, you’ll see a lot of “inflation” hiding there thanks to money printing and low rates of the past 10 years.

eru 7y ago
Actually, real interest rates on eg American government bonds haven't been that low by 20th century standards. We saw much more negative real interest rates before. Especially after taxes. https://www.minneapolisfed.org/article/2016/real-interest-rates-over-the-long-run https://www.minneapolisfed.org/article/2016/real-interest-ra... Nominal interest rates however are very low, because nominal GDP growth is low.