7 ms·
According to the Taylor rule, the fed needs to raise prime rates to inflation plus 2% to avoid spiraling inflation, that is, 11%. Hope you enjoy double digit bo
by baggy_trough 4y ago
According to the Taylor rule, the fed needs to raise prime rates to inflation plus 2% to avoid spiraling inflation, that is, 11%. Hope you enjoy double digit borrowing rates or spiraling inflation.
- themitigating 4y agoWho do you hope enjoys this? Why are you excited for something bad to happen?
- 300bps 4y agoBad is a matter of perspective isn’t it?
- baggy_trough 4y agoObvious sarcasm is not obvious?
- danielmarkbruce 4y agoIt's a phrase. "hope you enjoy X". It just means "I'm pretty sure X is about to happen". It doesn't mean the person is excited for it.
- SilasX 4y agoIt also has the implication that they think X is bad and expect you to feel the same way, which, as one of the replies says, isn’t guaranteed, like if you’re more lender than borrower.
- codefreeordie 4y agoIf it happens, I will enjoy it. I would be relatively happy to see inflation drop while interest rates are above 10%. I could secure my financial future at much lower risk in that world. I'm not ideally positioned for that eventuality, because I didn't (and still don't) predict that outcome, but it would certainly be an opportunity-filled moment were it to occur. Honestly, "enjoy" is overstating the situation. The macro economy around such a circumstance would probably be miserable, so I would probably be unhappy. But, I would be happy to have the opportunity that such a moment would produce.
- TimTheTinker 4y agoAny market change is good for you if you can predict it with precision and capitalize on it effectively.
- codefreeordie 4y agoincluding no change, actually, thanks to the availability of all sorts of interesting options contracts
- beebmam 4y agoSounds pretty awesome to me, I'd be more than happy to loan at a >11% return.
- baggy_trough 4y agoDon’t you care about the real rate?
- robocat 4y agoAre you sure? You might have said you would be happy getting 8% a few months ago, which would have been bad? And you can get ≈50% putting money into Argentina Government Bonds: https://www.investing.com/rates-bonds/argentina-government-bonds https://www.investing.com/rates-bonds/argentina-government-b...
- hattmall 4y agoWhy? How would you even buy that?
- lmm 4y ago> You might have said you would be happy getting 8% a few months ago, which would have been bad? If I was locked into some 8% loans now there are worse places to be. Yes I'd take a bit of a hit, that's life. > And you can get ≈50% putting money into Argentina Government Bonds For a few months until they default, sure. There's a reason they're so cheap.
- cko 4y agoThe 70s were the worst time to be an investor in terms of real returns. Even worse than the 30s, which saw deflation, so the real return was actually not as bad in comparison. Also, the market would not react well if the Fed signalled they'd go any higher than 5%. If I knew 11% was happening, I think I'd liquidate to cash now, then go 60/40 when it happens. (Currently I'm 100% equities.)
- bjornsing 4y agoBut cash has a negative real return of ~11% in that situation, right? You would just eat that? I’m 90% in equities, with a short position in German Bunds (their treasuries) as a hedge. I’m also borrowing against those equities (at a 2.18% rate), so you could say I’m 137% in equities. This feels risky, but I don’t know what I could do otherwise. I hate the idea of sitting in cash with a guaranteed negative real rate of return of about -10% per year, even if it’s for a short period of time. Also, what happens if the Fed doesn’t stamp out inflation in that case? Wouldn’t that force people to buy equities like crazy?
- almost_usual 4y ago11% interest on 30+ trillion dollars of national debt.
- thomasahle 4y agoDoesn't interest rate changes only affect future debt?
- deleted 4y ago[deleted]
- jnwatson 4y agoAverage maturity of US debt is sitting at 65 months right now. The treasury borrows at several maturities for various practical purposes, including that shorter term maturities have lower rates. Most of the current debt will have to be refinanced.
- rayiner 4y agoWait what? I remember when it crossed $10 trillion. When did we become Japan?
- ldjkfkdsjnv 4y agoNot sure why this is getting downvoted, watch a famous hedge fund manager on CNBC say the same thing the other day
- baggy_trough 4y agoHN commentariat loves shooting the messenger.
- cko 4y agoWhat could cause spiraling inflation? Human behavior? Looks like high energy costs are here to stay (due to years of ESG signalling leading to underinvestment in oil/gas) but what about other prices?
- baggy_trough 4y agoNegative real interest rates are inflationary.
- almost_usual 4y agoCreating 40% of broad money in 2.5 years.
- xyzzyz 4y agoThis on its own should only create a single inflationary shock, not a spiral.
- deleted 4y ago[deleted]
- UncleEntity 4y agoIt takes a while for all that new money to move through the economy. Plus the Fed has been paying banks interest on their excess reserves in order to prevent that sort of thing. Hell, AFAICT I’m still living off the money I got from unemployment insurance two years ago and have just been banking the cash for the job I’ve had for the last year (and a day, yesterday was my anniversary apparently).
- puranjay 4y agoService and shelter inflation tend to be sticky. You don’t renegotiate your lease or your salary every month. Inflation is now moving increasingly towards these two categories, which indicates that it could be around much longer even if supply chain issues get resolved.
- el_nahual 4y ago
- readthenotes1 4y agoDid Taylor consider quantitative easing and tightening? The shadow funds rate messes with these numbers quite a bit
- r00fus 4y agoHow much QE is still going on?
- readthenotes1 4y agoI don't know the exact numbers but it is still fairly large. They just started cutting back June 1, which does have an effect on what it believe is known as the shadow funds rate
- nostromo 4y agoWe should be solving this by fixing supply chains, allowing domestic energy production to increase until the Russian war is resolved, raising taxes on the very wealthy, and cutting spending (to reduce deficit spending, which creates new money). These would all be supply side fixes and budgetary fixes. Instead we're going the demand side route: keep making everyone poorer until people stop buying things.
- dageshi 4y agoGiven the disparity between the current interest rates and the inflation rate, that is more or less what the Fed is doing. They're no where near the point where they're actually trying to stop inflation with interest rates.