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Raising long term rates = central banks reducing their long term debt purchases - they are one of the primary buyers right now, keeping those rates artificially

Raising long term rates = central banks reducing their long term debt purchases - they are one of the primary buyers right now, keeping those rates artificially low compared to what free market rates would be. If central banks stopped buying medium/long term debt now, those rates would spike and the economy would choke. They can't do it. Central banks have a couple of primary mandates - (consumer) price stability ie. keeping inflation in check, and sustainable growth / employment. As long as the economy is weak and the official CPI figures don't show sustained inflation, they will keep printing (buying debt), in order to protect growth, employment and financial stability. We are getting to the limits of how much you can print without affecting inflation. They are unable to let longer term rates rise (by stopping or tapering debt purchaces) because the it will negatively impact the fragile economy - unless there is clear indication of sustained inflation, in which case they are mandated to act. This would also be very bad for the economy (inflation/rate rises plus economy stagnating). The only way out of this mess is for central banks to reduce buying debt very, very slowly and hope the economy doesn't choke and grows out of this. There is no other way.

jldl805 5y ago
"There is no other way" = "There is no Plan B" Fortunately if we've learned anything from recent history, it's that our initial attempts at a solution are almost always successful and rarely are there setbacks, hiccups, or insurmountable obstacles along the way to the perfect realization of your immaculately designed strategy.
- dharma1 5y ago
  I don’t think it’s so much an immaculately designed strategy as a corner central banks have painted themselves in and have difficulty getting out of. And of course monetary systems could go another way that doesn’t end so well for central banks, like: -high inflation central banks can’t control -collapse of fiat -return to a gold standard in some form -hypercryptoization -the path of last 20 years of Japan …or some other unknown turn of events like a war between superpowers or emergence of advanced AI which will turn the economy upside down
  - jldl805 5y ago
    Yes I agree with your summary of the situation. I assumed a phrase like "immaculately designed strategy" would set off your sarcasm sensors but I appear to be mistaken.

jldl805 5y ago

"There is no other way" = "There is no Plan B" Fortunately if we've learned anything from recent history, it's that our initial attempts at a solution are almost always successful and rarely are there setbacks, hiccups, or insurmountable obstacles along the way to the perfect realization of your immaculately designed strategy.

dharma1 5y ago
I don’t think it’s so much an immaculately designed strategy as a corner central banks have painted themselves in and have difficulty getting out of. And of course monetary systems could go another way that doesn’t end so well for central banks, like: -high inflation central banks can’t control -collapse of fiat -return to a gold standard in some form -hypercryptoization -the path of last 20 years of Japan …or some other unknown turn of events like a war between superpowers or emergence of advanced AI which will turn the economy upside down
- jldl805 5y ago
  Yes I agree with your summary of the situation. I assumed a phrase like "immaculately designed strategy" would set off your sarcasm sensors but I appear to be mistaken.