Loading ...Food For Thought
Given the earlier discussion about long term interest rates , some thoughts and questions. I don’t have any definitive narrative either way and tend to defer to what the charts and technical analysis indicate. That being said here are the thoughts and questions. Given the highest all time level of debt, it is unlikely that straight extrapolation is going to play out for interest rates. In other words, what is going to take interest rates up appreciably higher? One can say the dollar is going to collapse and let’s accept that. So if the dollar collapses and interest rates spike, the economy is going to collapse as well. That should cause pressure on rates to fall or at least stay lower than previous cycles. Other than the government printing and pumping, which might keep the economy from tanking in the short run there are just too many conflicting economic pressures for a scenario where interest rates go significantly higher and stay there for an extended period of time. Any comparisons to previous eras are flawed because everything changed in 1971 when the US went off the gold standard. Yes, rates can spike, yes, the dollar did spike last year as the rate hikes began and probably will fall back some as they slow and eventually stop. I don’t know what the economy will do over the next 6-12 months, but if things get crazy and it has a sharp decline in the next year or two it is highly unlikely rates are going much higher and staying there for any period of time. The wildcard is probably, if the technicals do breakout to suggest otherwise, that some form of default and revaluing of gold tied to going back on a gold standard could cause a temporary roller coaster in rates. However, that would probably be a good thing because then the whole ballgame gets a reset and things would settle down at some new future level where relative stability would once again result.(Not a prediction just one possibility) So for now I will watch the charts and rate market with no definitive expectation either way, but if rates do break sharply higher, I doubt they will get anywhere near old highs and it would most likely be a short term spike before either an economic collapse or some form of default/reset that would lead to them coming back down to a more normal sustainable level.
Good points CM
5% plus is the more Normal level ( not the previous long term 0% )
Agree, 0% was a distortion and unsustainable. I heard someone recently suggesting zero actually contributed to lower growth. 5% plus or minus is definitely more appropriate although it may end up a bit lower than that given the high levels of debt and growth likely to be slower than previous averages.
Here’s a great primer on economics and how it really works, rather than what BS they teach at university: https://www.youtube.com/watch?v=H3Va1Zo4M2I&t=17s
And here’s another great talk on inflation and the battle for control: https://www.youtube.com/watch?v=dSB2CHKtdwM
The interest rates follow the economy, not the other way around. See my first post above by Richard Werner. All this talk is just distraction.
“The interest rates follow the economy, not the other way around.” Not sure what or who you are talking about. I said if the economy tanks interest rates would drop. Who’s talk are you referring to as being a distraction and who are you referring to who said the economy follows interest rates?
I wasn’t referring to you CM as being a distraction, but most other economists out there. I’m no expert at all but I just listened to the talk by Richard Werner in post 4 above and he seemed to make sense to me. I believe you are right if you said the economy tanks then interest rates would drop. I found the lectures by Richard Werner most illuminating which is why I posted them, for others to possibly learn from. Have a great day and thanks for all your good stock recos.