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A much bigger issue that I keep seeing not getting enough emphasis is when the real rates go up US will have to keep raising their debt ceiling substantially to
by mercy_dude 5y ago
A much bigger issue that I keep seeing not getting enough emphasis is when the real rates go up US will have to keep raising their debt ceiling substantially to fund their debt (34 trillions and counting). If the last deb ceiling raising debacle was of any indication, this will be a very difficult political process in a rising rate environment, not to say US having to pay for interest expenses equivalent to another military when rates go higher by a mere 2-3% is not far fetched anymore at this level of borrowing. So something is got to give, either there is sovereign default which is unlikely or stagflation of some sort with rising rates, I don’t know. I just don’t think Fed is as independent as people would like to think they are.
Also May be I am a moron but how does raising rates help the supply chain crisis when all else said that is what’s behind driving the inflation (at least that’s still the narrative from the administration and mainstream economists)? I mean if the expectations is Americans with their 2 trillion households savings are just gonna start shoring up their cash and stop spending because the rates went up by 75 basis point, I just don’t buy it. May be the Feds don’t want inflation expectations become embedded which I understand even though that seems to be the reality at least for a while till at least 2023.
- dmichulke 5y agoThey'd gradually stop spending because they'd start saving or paying back their variable interest rate loan.
- mercy_dude 5y ago> They’d gradually stop spending How though? Reducing spending on Social security or military, would be incredibly unpopular.
- dmichulke 5y agoI'm saying households would do that. Not the government.
- boppo1 5y ago> that is what’s behind driving the inflation (at least that’s still the narrative from the administration and mainstream economists Some of us just don't believe this.
- jfengel 5y agoDebt ceiling debacles are ordinary politics. It has nothing to do with economics. That is just posturing. It's somebody holding out until they get something else they want. Markets don't even get disturbed by it. The threat is always there but nobody expects them to genuinely cut off their own noses to spite their faces. It's not great, but it is par for the course.
- anm89 5y agoSooner or later it's going to get so absurd that I think they will write legislation to change the whole system because the optics of that theatre will get bad. If we had to do another 5 trillion in fiscal spending for an upcoming downturn let's say.
- landemva 5y agoI agree big changes will happen. Maybe around 2030 there will be combination of federal debt default (some kind of cram down term extension), and feds roll social security and bankrupt State retirements into one living wage monthly payment for everyone which is age-tested.