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> "...the Federal Reserve will keep pushing those interest rates higher and higher..." They really can't raise interest rates much above 5%, this follows strai

> "...the Federal Reserve will keep pushing those interest rates higher and higher..." They really can't raise interest rates much above 5%, this follows straightforwardly from observing how much of the national budget is consumed by debt service as a function of the interest rate. (Higher rate = larger fraction of budget allocated to debt service, obviously.) If they go above five-ish percent, this implies that they'll need to either A) raise taxes to a level that would likely inspire mutiny, B) greatly reduce borderline-impossible-to-cut parts of the budget such as the military industrial complex + welfare spending broadly construed, C) increase productivity by a lot, D) monetize the debt or E) default on the debt. Probably they will attempt to pick F) all of these, in varying degrees, though obviously some are easier to implement than others. Anyway it is very unlikely that we will see rates much above 5% in the foreseeable future.

dragonwriter 3y ago
> They really can't raise interest rates much above 5% They really can. > this follows straightforwardly from observing how much of the national budget is consumed by debt service as a function of the interest rate. Decoupling monetary policy decisions from that kind of fiscal concern is a substantial part of the reason for an independent central bank setting monetary policy. > If they go above five-ish percent, this implies that they'll need to either A) raise taxes to a level that would likely inspire mutiny, B) greatly reduce borderline-impossible-to-cut parts of the budget such as the military industrial complex + welfare spending broadly construed, C) increase productivity by a lot, D) monetize the debt or E) default on the debt. Note that the first “they” is the Federal Reserve and all the other “theys” refer to Congress. Also, while government borrowing costs tend to move in roughly the same direction as the fed funds rate, they very much aren’t the same thing and can be very widely separated.
- avn2109 3y ago
  Much is made of "independent central bank," though I typically think of that independence in the same light as "newspaper with independent newsroom which is firewalled off of the advertising/commercial side such that editorial decisions are never influenced by the business." In practice Congress and the Fed are sibling entities in the same system, which cooperate when stressed (there are many historical examples of this, e.g. WW2). The alignment is obviously not perfect, but there is much more coordination than "totally independent" as is often bandied about.
ac29 3y ago
> They really can't raise interest rates much above 5%, this follows straightforwardly Keep in mind this headline 5% rate is an overnight interest rate, not what the Treasury actually pays on the national debt. All treasuries between 2-30 years are trading below 4% today, and obviously long term debt issued when rates were lower remains at those low rates today.
- thunky 3y ago
  > All treasuries between 2-30 years are trading below 4% today, And, these treasury yields actually fell today.

dragonwriter 3y ago

> They really can't raise interest rates much above 5% They really can. > this follows straightforwardly from observing how much of the national budget is consumed by debt service as a function of the interest rate. Decoupling monetary policy decisions from that kind of fiscal concern is a substantial part of the reason for an independent central bank setting monetary policy. > If they go above five-ish percent, this implies that they'll need to either A) raise taxes to a level that would likely inspire mutiny, B) greatly reduce borderline-impossible-to-cut parts of the budget such as the military industrial complex + welfare spending broadly construed, C) increase productivity by a lot, D) monetize the debt or E) default on the debt. Note that the first “they” is the Federal Reserve and all the other “theys” refer to Congress. Also, while government borrowing costs tend to move in roughly the same direction as the fed funds rate, they very much aren’t the same thing and can be very widely separated.

avn2109 3y ago
Much is made of "independent central bank," though I typically think of that independence in the same light as "newspaper with independent newsroom which is firewalled off of the advertising/commercial side such that editorial decisions are never influenced by the business." In practice Congress and the Fed are sibling entities in the same system, which cooperate when stressed (there are many historical examples of this, e.g. WW2). The alignment is obviously not perfect, but there is much more coordination than "totally independent" as is often bandied about.

ac29 3y ago

> They really can't raise interest rates much above 5%, this follows straightforwardly Keep in mind this headline 5% rate is an overnight interest rate, not what the Treasury actually pays on the national debt. All treasuries between 2-30 years are trading below 4% today, and obviously long term debt issued when rates were lower remains at those low rates today.

thunky 3y ago
> All treasuries between 2-30 years are trading below 4% today, And, these treasury yields actually fell today.