patrick.net

Predictions are hard, especially about the future.

Rates (at this time) should be 8% and in any other time in History, that would have been a good thing.
QE is a very very very very bad thing, especially when it was just reported today, that all 7 current governors have assets worth more than $1 million.

I hear these people all the time saying what rates "should" be. Why??

IMO, the CNBC assertion is 100% wrong. The Federal Reserve's power over interest rates is highly overrated.

tatupu70 says

I hear these people all the time saying what rates "should" be. Why??

IMO, the CNBC assertion is 100% wrong. The Federal Reserve's power over interest rates is highly overrated.

I wouldn't lend myself money at 4% over 30 years. Of course the Fed has control over interest rates. That whole 85B/mth means something. Remove that and I wonder what would happen. Nothing you say? Wow

tatupu70 says

The Federal Reserve's power over interest rates is highly overrated.

The Fed controls interest rates by setting the Feds fund rate a zero and by buying trillions of dollars of treasury bond keeping the demand and price for such treasuries high and lowering the interest rate.

smaulgld says

The Fed controls interest rates by setting the Feds fund rate a zero and by
buying trillions of dollars of treasury bond keeping the demand and price for
such treasuries high and lowering the interest rate.

I understand what options they have and how they use them, my point is that I believe their influence is overrated.

Call it Crazy says

wonder the same thing.... There are many opinions about the effects of the 85B a month, but I wonder where the housing market and financial markets would be right now if that 85B was never introduced into the system last Fall....

Yes, the reason they did QE was to drive interest rates down so they would stimulate housing purchases.

tatupu70 says

I understand what options they have and how they use them, my point is that I believe their influence is overrated.

Overrated in which way? TThe Fed's stated purpose of QE was to lower interest rates through open market purchases of mortgage backed securties and Treasury Bonds.

It is indisputable that they have achieved this. Indeed they have driven rates lower than they ever have been before.

The only way their influence is overrated is if people were expecting them to be able to push interest rates below zero and it didnt happen

RentingForHalfTheCost says

I wouldn't lend myself money at 4% over 30 years.

4% Was classic savings rate, you didn't get rich quick but it would accumulate over 20 to 30 years provided you kept adding to your nest egg.

I remember a bunch of old Jews at a condo rec center I was carpeting back when I was in my early 20's telling me, how important it is to always make sure you pay your self by putting money in a savings account. Ideally you want two, one for your future, that no one can ever take away from you, and you know with out a doubt it would be safe, and would be there when you need it. And another bank account that you put money in until you get enough money to "Play with"(old school talk for investing).

Yes even back then, those smart bastards knew investing was a crap shoot, and you were essentially playing a game of chance.
Their security was in the bank backed by the FDIC paying them 3 to 4%.

Wait! The stated goal was to get employment under 7%?, or was it 6%?

Wait! The Stated goal was to bring stability to the market place.

Wait! The unstated goal was to stop deflation of asset, and commodities prices.

Take your pick, but 4% is a healthy return on mortgage debt if the under lying asset can support a foreclosure price point.

In a working, functioning economy 4% is the sweet spot for mortgages. It stimulates, gives abundance of capital, and more risky investment can command higher interest rates.

Commodity prices rise, and fall by demand, and the economy can grow, but it doesn't have to.

In a perfect world the Dow would be driven by innovation, rather than speculation.

In my now long evolved opinion the longer the Fed plays this out the more damage they are doing.

The should stop talking, taper, and take the lumps until things calm down again, then taper some more.

There's enough cash money in the system to float the global economy.

smaulgld says

Overrated in which way? TThe Fed's stated purpose of QE was to lower interest
rates through open market purchases of mortgage backed securties and Treasury
Bonds.

It is indisputable that they have achieved this. Indeed they have driven
rates lower than they ever have been before.

The only way their influence is overrated is if people were expecting them to
be able to push interest rates below zero and it didnt happen

It is overstated when people say that rates would be 7% without Fed influence. The market sets rates. The Fed can influence those rates, certainly, but not to the extent that some of the posters here think....

tatupu70 says

The Fed can influence those rates, certainly, but not to the extent that some of the posters here think....

Correct, the market sets rates but when the FED is a participant in the market to the tune of buying $trillions$ worth of bonds they drive the price of bonds higher and yields lower-that is not in question.
How high would yields be if the Fed wasn't buying-clearly higher than they are now.
I would not put a % on it like some do-the author of the above article says 7%

tatupu70 says

smaulgld says

Overrated in which way? TThe Fed's stated purpose of QE was to lower interest
rates through open market purchases of mortgage backed securties and Treasury
Bonds.

It is indisputable that they have achieved this. Indeed they have driven
rates lower than they ever have been before.

The only way their influence is overrated is if people were expecting them to
be able to push interest rates below zero and it didnt happen

It is overstated when people say that rates would be 7% without Fed influence. The market sets rates. The Fed can influence those rates, certainly, but not to the extent that some of the posters here think....

Yet the mention of tapering jolted the bond market.

Analyzer says

Yet the mention of tapering jolted the bond market.

Rates nearly doubled on the ten year note since the Fed started TALKING about ending QE-That is not overrated influence!

smaulgld says

Analyzer says

Yet the mention of tapering jolted the bond market.

Rates nearly doubled on the ten year note since the Fed started TALKING about ending QE-That is not overrated influence!

Most experienced people on Wall Street also knew that when QE3 was announced the market would surely go higher, and they talked it up to where it is now. Old saying 'don't fight the Fed'.......

Analyzer says

Yet the mention of tapering jolted the bond market.

Yes, moreso becuase the market read that as a sign that the economy was improving more than expected.

smaulgld says

Rates nearly doubled on the ten year note since the Fed started TALKING about
ending QE-That is not overrated influence!

Yep--like I said, the Fed's talk is probably as powerful as their actions.

tatupu70 says

Analyzer says

Yet the mention of tapering jolted the bond market.

Yes, moreso becuase the market read that as a sign that the economy was improving more than expected.

LOL I guess that's why the Dow is down 1000 points since the taper talk started ;)

tatupu70 says

Analyzer says

Yet the mention of tapering jolted the bond market.

Yes, moreso becuase the market read that as a sign that the economy was improving more than expected.

Most of these people know that the economy is not improving and is based on Fed steroids. They don't need to wait for Fed speak to get their data.

Get Ready For A Massive Interest Rate Shock Soon

Not soon, interest rates don't move quickly.

zzyzzx says

Not soon, interest rates don't move quickly.

they did move quickly the past month-only a point but as a percentage that is huge.
The author is predicting a quick rise

smaulgld says

From CNBC:

http://www.cnbc.com/id/100990929

This commentator says rates would be 7% without QE.

Without QE, mortgage rates would be 12% and money market accounts would return 5+%. MMA, CDs, and other short-term, safe investments would attract all the capital and housing rates would plummet to less than $100/sq.ft. in the sunshine belt.

The middle class would be able to afford housing, would stop renting, would start spending their money on all the other things that people buy after buying a house, unemployment would plummet, GDP growth would skyrocket, tax revenues would increase dramatically without raising any rates, the sequester would be over, the Second Great Depression would be over, and we would have a national surplus that could be used to pay down the national debt, but Congress will instead choose to increase military spending.

There never was a Great recession, or what ever you kids call it now.
2008 was no different than any other time in our history, when a bunch of rich old guys went bust.
For every old rich guy that goes bust, 100 small guys get their start.

America would be rioting in the streets and demanding politician's heads had THEY not got a black man elected to chill everyone out with Town hall roadshow def comedy jams.

Kumbiya motherfuckers!

CaptainShuddup says

There never was a Great recession, or what ever you kids call it now.

I didn't say recession. I said Second Great Depression. And yes, the depression did happen and is still happening. GDP is way lower than it should be and far too many people who should be gainfully employed and productive are idle. That's a depression.

The word recession was defined by assholes to keep the public from understanding when they are in a depression. Recession was defined in such a way that it is virtually impossible for recessions to last long even if the economy is in the shits for centuries. For example, if the GDP dropped by 99% in one quarter and then grew at 0.0000001% for the next five hundred years, we would not be in a recession at any time during those five hundred years. How fucking retarded is the word recession?

CaptainShuddup says

For every old rich guy that goes bust, 100 small guys get their start.

In this depression, it's mostly the small guys who went bust. The rich are having their largest profits ever.

Another reason is that during the Great Depression, which my parents lived through, is social security, food stamps, unemployment insurance, Medicaid, etc. these did not exist back then and do now, that is a big difference. My parents said you never want to see that again...they never forgot and passed it on. I have no debt, savings in a very conservative account, retirement the same, and thus will be ok....but we never lived beyond our means. But even with that, it is very separate now, class separation...healthcare is ridiculous costs etc...even with all our savings it is still tough..due to salary/income inequality and greed run wild, including the non 1%, who think and spend like they are.....IMHO...

CaptainShuddup says

America would be rioting in the streets and demanding politician's heads had THEY not got a black man elected to chill everyone out

It was the Obama stand on the Iraq war that got him elected, otherwise we would be def comedy jamming with Hilary.

What I would say is that Obama should have let the economy collapse, and blame it all on Bush. He instead surrounded himself with the same people who caused the real problems to begin with.

We hit a normal in 2008, and it should have been left to continue. Instead we just inflated another set of asset, and commodity bubbles for a false sense of inflation.

Well, it's done now, so the Fed should step back, and let the chips fall where they may.

smaulgld says

This commentator says rates would be 7% without QE

Well they were 6% in 1999 when I put everything in a fixed annuity and felt like a sap because everyone else was getting so much better returns. As I was leaving the bank the man told me as an afterthought that "by the way, your annuity has a floor of 3% if interest rates ever dropped below that, but something like that will never happen." For awhile I used CD's, but when they dropped I just put everything back in the annuity which is matured but not annuitized. They advised me to just use is like a savings account, which I do. I got a letter the other day saying I can continue doing this but at age 95 I must begin making withdrawals.

David Losh says

Well, it's done now, so the Fed should step back, and let the chips fall where they may.

Too late for that now

CaptainShuddup says

Rates (at this time) should be 8% and in any other time in History, that would have been a good thing.

CaptainShuddup says

4% Was classic savings rate, you didn't get rich quick but it would accumulate over 20 to 30 years provided you kept adding to your nest egg.

Watch out what you wish for. 8% interest rate means inflation be 5%. 4% on saving rate means inflation be 5% or more plus you will pay interest earned income tax on a top of this. Total rip-off. NEVER EVER saving account rate pays more than inflation or equal to inflation. Nobody EVER get rich by keeping money on saving account. Just remember this.

smaulgld says

David Losh says

Well, it's done now, so the Fed should step back, and let the chips fall where they may.

Too late for that now

Backed themselves into a corner?

Analyzer says

Backed themselves into a corner?

Unfortunately yes http://smaulgld.com/the-king-is-surrounded-bernankes-no-exit-dilemma/

smaulgld says

Analyzer says

Backed themselves into a corner?

Unfortunately yes http://smaulgld.com/the-king-is-surrounded-bernankes-no-exit-dilemma/

5 years into this massive monetary infusion and this is where we are at. Just like when you own a falling stock, you need to know when to cut your losses and move on.

Bring on the 7% interest rates. I'm tired of only getting 1% on my CD's ($100K).

REpro says

Watch out what you wish for. 8% interest rate means inflation be 5%. 4% on saving rate means inflation be 5% or more

That would only be if the rise in interest rates was to combat inflation. We don't have wage inflation so we are simply paying more for the speculation of others.

A rise in interest rates might cause some stall in growth to the 2% that has been projected, or we may have deflation.

Either way we need higher interest rates to get money back into the system. If we can charge more for money more money will come back into the economy.

David Losh says

Either way we need higher interest rates to get money back into the system. If we can charge more for money more money will come back into the economy.

That will drive inflation. Actually the opposite is true.

Of course Bernanke and Co will pull another load of crap on us:

REpro says

That will drive inflation. Actually the opposite is true.

I agree, but the funny thing is the opposite has not happened for people like me. I've had a 20% DP sitting in a shitty .95% account for the last 2 years. I am not encouraged to invest it in this frothy market, which is clearly a boys' club for the .1%. On the other side, I can't buy a house with my measly 20% shekels, either, since it's cash or shove it in the LA market.

When are these "massive" and "shocking" interest rates coming? "Soon"?
#eyeroll

egads101 says

lower interest rates encourage investment, higher interest rates stifle it.

As much as I hate engaging a total, and complete troll, the facts are clear that these historically lower interest rates only stimulated speculation in assets, and commodities.

It created another sense of false inflation, and growth. The reality is that the consumer is paying higher prices for lower quality products.

Financial products have been stifled by these lower rates. Why lend money if all you get is a 3.5%, or 4% return? Why tie up your money at lower rates when you can make quick cash through speculation?

The facts are clear, and presented here on this blog daily. You can choose.

REpro says

That will drive inflation. Actually the opposite is true.

Sorry, but we are in a stage of deflation, and deleveraging. Those higher rates will only add to that pressure.

The projections of even a 2% growth seem to be a stretch, and the fear is that if the Fed does taper we will be stuck with lower growth rates.

We are in extraordinary times. There are tons of cash in the global economic system. We need to get that cash circulating into the hands of consumers rather than taking the money away from consumers, and squirrelling it away.

We need that money to get long term returns. That will only happen with higher interest rates.

egads101 says

A troll is not someone who counters your idiotic positions...You can't really help it that you are stupid, but ignorance is a curable condition.

These are troll tactics. All of your comment is provocative so people will engage you.

You don't have anything to say, you are simply seeking attention.

Your understanding of economics is dismal, but you claim to be a teacher of math, and economics.

You may have taken an Econ 101 course, because that is as far as your knowledge takes you.

Have another bottle of wine Bob, chill out, ride your bike, and play with the dog. It won't get any better than that for you.