When will interest rates go back up?

It's like a reverse bubble. The Fed can no longer lower rates to stimulate the economy (not by any significant amount), so they're stuck.

At some point, they HAVE to go back up. I don't know jack about economics, so maybe you guys have an idea what would have to happen for rates to rise.

It pisses me off that anyone who spent their life building savings has to either invest it where there's risk, or let billionaire bankers use it for free, and make more billions.

"It pisses me off that anyone who spent their life building savings has to either invest it where there's risk, or let billionaire bankers use it for free, and make more billions."
You could hold cash.

Yeah, loans will be way out there. You can get an auto loan for like 2.9% now. Get it while it lasts.

to plunder a sufficient amount of the people's assets.

Just saying "creating money ex nihilo" is meaningless. You have to provide a mechanism by which this negatively effects you.

Similarly, the basic law of economics affirms that when more currency is chasing the same amount goods and services, the value of the currency is devalued.

Thus, the policy of quantitative easing is nothing more than a policy of regressive taxation. And that negatively effects everyone except the government and the banks.

conflate and confuse 'currency' with 'money'. There's no sign that there is any more 'currency' now than there is at any other time. Unless you have a link or evidence to prove it, I call bullshit on that.

The plain fact of the matter is that QE and QE2 were designed to, and have largely succeeded in, fighting off the very real threat of a severe 'deflationary spiral,' which the economy was staring at in the fall of 2008.

As for physics, there is no 'law' that I am aware of that says something cannot be created from nothing. As with your confusion about the distinction between 'currency' and 'money', so too your confusion and conflation of a 'law' of physics with a provable or disprovable 'hypothesis,' not to mention conflating physics with metaphysical entities like 'something' and 'nothing'. Since matter and energy are actually, so to speak, flip sides of the same coin, the most one can say, as Shakespeare's Lear says, is that "nothing can come of nothing."

Edited for clarity and typos.

are talking physics.

Clearly, you have a limited understanding of economics and as for your notion that QE has succeeded, well, just wait and see how this regressive policy plays out.

is regarded as blasphemous speech.

Oh well...

So far, I have yet to see you put forth any real criticism of the FED or Bernanke.

Oh well...

The first being that you are misinterpreting complex economic relationships and claiming they are basic economic principals. You are ignoring the other variables which effect price levels, namely velocity of money and final value of goods and services. There is no reason that printing money would cause inflation when faced with deflationary changes in relevant variables.

Secondly, Inflation benefits the poor and hurts rich people and bankers. We don't have problematic inflation, but if we did it would be bad for rich people and good for poor people. Your interpretation of the effects is the opposite of reality. People who are in debt (poor people) are able to repay their debts with devalued currency, while the people who are owed money (rich bankers) get repaid with devalued currency.

... why the fuck are you here?

Or are you seriously defending that video.

... I don't care what it says. What happens when you print currency is well understood by EVERYONE and there really isn't any debate about it.

While having little to no understanding of the economic models which their opinions are supposed to be based on. The world doesn't hold outside variables constant like basic economic theory.

What you claim everyone understands has already failed to happen. QE started three years ago and we have yet to see problematic inflation. Japan did it in the 1990's and there was no problematic inflation. The EU did the exact same thing and there has been no problematic inflation. It would seem that what you think happens when you print currency doesn't happen. The reality proves that you can not be right.


You do realize that debate about the causes of price level fluctuation was NEVER fully resolved in the first place. Debate about it continues to the highest levels of economic research and education. Anyone with a economics degree worth the paper it was written on would know this.

.. is just like physics, only slower. Effects do not happen immediately and the exact threshold that enables each reaction is not precisely known.

If the Fed continues doing what they have been, and they pretty much have to, the eventual result is a near certainty.

"If the Fed continues doing what they have been, and they pretty much have to, the eventual result is a near certainty."
Yes, but they would have to continue doing QE after we have recovered. We know they will not do this so we can be certain that it will not cause problematic inflation. In fact they have publicly stated that after recovery or in the event that QE causes inflation, they will sell the government bonds and MBS to qualitatively tighten.

...and they are busy trying to blame it on other factors.

What index do you use to measure inflation? Every index that I have seen indicates low single digit inflation. Please link to the index you used to come to the conclusion that the US is experiencing high inflation.

There are non-monetary policy factors that influence price levels. This is recognized by the preponderance of economists. If you have research which indicates that this isn't the case would you please link to the peer reviewed and published journals that support your conclusion.

will drive inflation (at least on imports) and inflation negatively impacts savers/creditors (but, conversely, benefits borrowers/debtors).

putting on my tinfoil hat (and something I am sure that the conservative talking heads will say or are currently saying), this is part of the Obama "plan" to tie people more and more to the government especially as those with fixed incomes get squeezed by rampant inflation.

Conservatives put on their inflation patrol hats the day Obama got into office to prevent him from spending money, which is the number one thing the government should be doing for recovery. Inflationary chicken littles want to directly sabotage Obama with inflationary boogie men that will never show up. Preventing inflation is just an excuse to prevent recovery.

QE can't cause problematic inflation because the FED can just sell the securities that they bought, Quantitative tightening.

Why is it even a problem?
Inflation negatively effects rich people and bankers.
Inflation benefits poor people and the middle class.

you sure about that?

as examples: let's look at the worldwide commodities markets:

Oil prices (+40% in the last year)
gold (+25%)
copper (+37%)
coffee (+94%)
cotton (+94%)
sugar (+60%)
soybeans (+40%)

why do you think it is? speculation? partially. The biggest thing is the weakening of the US dollar:



and why is that?

QE is certainly an explanation. QE1: $700-800B; QE2: $1.2T

The next question: how much did the economy grow during that same time? certainly nowhere near the amount of "money" injected into the economy.

The final question: historically what happens when money supplies increase faster then economic growth? review the economic history of:

Angola
Argentina
Austria
Belarus
Bolivia
Bosnia and Herzegovina
Brazil
Bulgaria
China
Free City of Danzig
Georgia
Germany
Greece
Hungary, 1922-1924
Hungary, 1945-1946
Israel
Krajina
Mexico
Nicaragua
Peru
Philippines
Poland, 1921-1924
Poland, 1989-1991
Republika Srpska
Romania
Russian Federation
Taiwan
Ukraine
Yugoslavia
Zaire
Zimbabwe

of course unless you seriously believe that the US economy doesn't follow historical precedent?

The CPI isn't even close to breaking double digits. All the accurate and non-biased indexes show that there is no problematic inflation. The only thing that you have shown is that you have almost no understand of what inflation is.


The historical precedent proves that we are not trouble on this front. Your analysis fails for two key reasons. The first is the rate of money creation. We are orders of magnitude away from any of those examples. The second factor is that Qualitative easing represents the purchase of assets, not spending the money. We won't have problematic inflation because the FED is positioned to tighten, while those nations were not.

ignores the foundations of the economy (food and energy prices) and both of those are seeing significant increases over the last year or so (or having you been to the grocery store and gas pump lately?).

So far these have not completely rippled thru the economy as companies are trying to hold prices down by lowering their margins but eventually that will end and these increases WILL be passed on to the end customer.

the writing is on the wall, ignore it at your own peril.

I will go out there and say that within the next year (barring an immediate strengthening of the US $$) the inflation rate for all items will top 5% and within 3 years it will hit double digits.

(bookmarking to follow and see how my predictions come out)

They are two fields which are well known for price fluctuations due to non-monetary reasons. The publish CPI reflects the actual price level changes felt by consumers. Not price level changes caused by market manipulation (speculators and supply side collaboration). Do you think there is deflation anytime the gas price goes down? Why would you think there is inflation any time it goes up?


If the inflation rate goes up to 5% within the next year it would be a good thing. Moderate inflation benefits the poor and hurts rich bankers.

I won't make predictions for 3 years, because I suspect politicians will continue to do stupid shit i.e. Palin might get elected. If the government wanted to cause painful disinflation (higher unemployment, less GDP) they could do it anytime they wanted. Don't you remember Reaganomics? All they have to do is qualitative tightening combined with increasing the interest rate.

Interest rates in China are already up. Inflation will force the US to increase it rates.

...debt in a program which began in Nov of 2010 and is planned to end a few days from now. $600 billion was used to purchase long-term Treasury securities, at about 75 billion spent per month.

Take just a second and stop right there. Remember we're talking about billions of dollars, here. Re-read the first two sentences in my post. Think about the enormity of what that actually means.

Anyway, I have heard that interest rates would be going up after the program ends and that big business has been snatching up as many dollars as they can before the interest rates go up. I have no idea, really, what will happen. Nobody else does either. But something is going to happen when nobody's blowing $75 billion a month to buy our debt.

Again, we're talking 75 billion dollars a month. That's 75 BILLION. A EVERY MONTH.

HERE is the link to the Federal Reserve's statement on the "program", btw. I hope you read it with your own eyes because I would never believe it were true if I didn't read it myself.

PB

oops, wrong spot

QE pushed investors to risky assets to earn a better yield.

though it's not when the "sell their treasuries" as many think, it's when they adjust the exchange rates for the renminbi.

at that point, they'll be exporting their inflation, which means higher interest rates everywhere else.

"It pisses me off that anyone who spent their life building savings has to either invest it where there's risk, or let billionaire bankers use it for free, and make more billions."

Right there it shows that you DO know more about economics that most people.

Then rates will skyrocket.

It will happen soon.

as bad as our debt is by historical standards, there's still plenty of opportunity and means to address the problem.

plenty of room for increased taxes, spending cuts, and a better economy that produces more revenues.

it'll take a couple of years of inaction and washington ineptness before the bond market really starts to lose confidence.

the fact that long rates are so low is a good indication that the market is not worried.

Recent weak economic data has pushed back the market's estimate for the timing of Fed's first 1/4 point tightening into Q2 2012...the first Fed funds future below 99.75 (0.25%) is April 2012 and conforms with the Eurodollar futures levels as well.

From here on, the market currently suggests we get to 1% (Fed funds) in Q4 2012, 2% in Q4 2013, 3% in Q4 2014...but then flattening out to only 3.5% in Q4 2015. All of this is consistent with recent rallies in most fixed income products. The extrapolated 5 yr Treasury rate 5 years forward is down to 4.42%.

On the inflation front, market views have cooled noticeably with the recent data and drops in commodity prices. TIPs breakevens that estimate inflation rates over various timespans are currently:

5yrs: 2.11% 10yrs: 2.33% 30yrs: 2.46%

Not much real economic news is due before Thurs-Fri. On Thurs, Q1 productivity is expected to be revised to rise 0.1 to 1.7%, and unit labor costs to drop 0.2 to 0.8%. The direction of both anticipated revisions is consistent with diminishing inflation worries.

Bloomberg has the Friday non-farm payrolls consensus at +190k, although other surveys have it a little lower and the whisper numbers are much lower....consistent with the awful new claims and orders/production/zero revision to Q1 GDP. Important GDP drivers inside look flattish, with hourly earnings expected up 0.1% and the workweek expected to be unchanged.

I read yesterday noted that the whisper payrolls number is so low and so widely whispered -- under 100k -- that by the time we actually get the release, 150k might knock bonds down a bit.

FWIW, this backdrop is generally consistent with FI moving to modestly lower rates over the next month or so as 1) Greece and the PIIGS shake the Euroland sov and banking credit picture, 2) econ data continue to come in on the weak side, and 3) as Fed buys another $100-ish billion Treasury coupon issues before 6/30 while NO NET NEW SUPPLY arrives (probably) 'til August when the debt ceiling is likely raised.

are driven by 2 things.

from the fed side of the equation: as a method of cooling the economy when it grows too fast.

from the private sector side: when the risk outweighs the potential returns

That would be my guess. The fed needs to feel that the economic recovery is strong enough to survive an increase in short term rates. Right now the yield curve is extremely steep. The risk in my mind is that it could invert (long term rates are less than shorter ones) which historically signals a recession within 18 months.