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The Era of Very Low Inflation and Interest Rates May Be Near an End

nytimes.com

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Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#81

Post by baybal2 »

matwood wrote: post #68
baybal2 wrote: post #61

Earlier quoted context omitted.

We live in weird time. If rates were to hit 80ies era level, 1 out of every 3 countries will default. For this reason they wouldn't. I thank myself for making a decision in my teenage years to keep half of my savings in metals. It was unbelievably wise for a 15 years old me.

> If rates were to hit 80ies era level, 1 out of every 3 country will default. Huh? Are you saying 1/3 of mortgages are variable rate?

I'm talking about government debt, not private. Though, a chain reaction , if it is to happen, will reach pretty much all and everything including private mortgages.

If you have a fixed rate one, you may well read the fine script better. Quite a few banks put a no reservations callback clause in the loan agreement.

If an individual gets his mortgage called back, for an average Joe the only way to get through that would be to get another loan, and at a higher rate.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#82

Post by dredmorbius »

rmrm wrote: post #65

In a world where inflation is going to go up, what should one invest in? People will often say gold. Which I guess is a proxy for any fixed supply asset. But weve seen price inflation in many things other than gold, such as houses and land, art, stock prices. Most things of lasting value ie not consumables. Does a precious metal have some other special qualities that make it behave poorly relative to other limited va…

A diversified portfolio.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#83

Post by rndmize »

quadyeast wrote: post #15
elvirs wrote: post #7

I am not buying that inflation is low. Property taxes and housing cost (especially rent) has doubled in last 10 years in New York. I think so has the medical costs. Just because gas prices are low dose not mean inflation is low

I agree completely. Everything I buy has gotten much, much more expensive, food, housing, transportation etc. Not 2%/yr more like >5%/yr. The CPI is rigged. Probably in favor of those who must payout relative to it.

Going from "I see higher inflation" to "a nationwide measure is rigged" is a big leap.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#84

Post by qazwsxedchac »

rmrm wrote: post #65

In a world where inflation is going to go up, what should one invest in? People will often say gold. Which I guess is a proxy for any fixed supply asset. But weve seen price inflation in many things other than gold, such as houses and land, art, stock prices. Most things of lasting value ie not consumables. Does a precious metal have some other special qualities that make it behave poorly relative to other limited va…

Precious metal, if held in physical form, has the unique property of being no-one's obligation. Additionally, it is by definition a bearer "instrument" and easily transportable, therefore suitable for mitigating political risk. This is why it performs well in times of crisis.

There is no one-size-fits-all answer to your second and further questions. Too much depends on individual circumstances, risk appetite and time horizon.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#85

Post by dredmorbius »

matte_black wrote: post #3

I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?

Debt becomes more expensive. If interest rates go very high, that can be crippling. That's probably unlikely.

There will likely be less money pursuing assets (real estate may be affected), and business ventures (start-ups). Given trends of the past decade, both are likely healthy changes, though SV types may be impacted.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#86

Post by lrem »

matte_black wrote: post #3

I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?

Imagine this was done quickly:

1: everyone who's got a borderline repayable mortgage to get anything in the overheated market and hasn't increased earnings by some 20-30% since then goes bust. This creates a wave of increased supply.

2: everyone's willing to buy gets way less loan amount for same repayments. This severely reduces demand at current prices.

3: 1+2 force prices down, meaning some people end up owning banks more than their house is worth. In the US the banks are in trouble, as people start walking away from their mortgages. In the EU such people are stuck with negative equity.

Such a scenario is outright disastrous, so no sane government will try it. So, the only way out of low rates is to increase this gradually enough to not create visible waves. Which means all 3 happen, but at a magnitude where most people do not notice.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#87

Post by amag »

ajross wrote: post #47
adventured wrote: post #27

Earlier quoted context omitted.

It's almost guaranteed we are not leaving a world of low interest rates (vs historical norms of the past 30 or 50 years). Most of the global economy is loaded up on debt: Japan, China, the US, large parts of Europe. These days it's the exception when a country has a modest debt context, whether at the government level, corporate level, or household level. Countries that we normally think of as very well off, such as…

> Countries that we normally think of as very well off, such as Denmark, Sweden and the Netherlands are among the most indebted people on earth in terms of household debt to income. They can't afford much higher interest rates at all, That's a little mixed up. The effect of inflation is to reduce the effective size of debt, not increase it. So if you owe someone $500US(which has a barter value of ~100 lattes), and a…

> Those who have borrowed come out ahead, on average.

I once stayed in a hotel room where the shower had the heat I wanted on average, it was horrible.

But when it comes to real estate, as long as you can afford the increase in interest you'll probably be fine. My concern, here in Sweden at least, is that given the current real estate prices here, I can't see how people with average incomes can afford a more normal interest rate like 4-5%.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#88

Post by lowdest »

rmrm wrote: post #65

In a world where inflation is going to go up, what should one invest in? People will often say gold. Which I guess is a proxy for any fixed supply asset. But weve seen price inflation in many things other than gold, such as houses and land, art, stock prices. Most things of lasting value ie not consumables. Does a precious metal have some other special qualities that make it behave poorly relative to other limited va…

Get a mortgage (or otherwise use dollar debt.) The dollars that you owe will shrink.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#89

Post by lewis500 »

"if threats of a trade war with China or other countries turn into reality, this will tend to increase inflation, driving up prices both directly through new tariffs on imported goods and indirectly by encouraging less efficient production."

I wouldn't call this "inflation" in the sense economists mean it. This could cause a one-time rise in prices, but it would not necessarily mean permanent change in the rate prices go up each year.

Maybe some of yall would like this federal reserve simulator I made last year: http://lewis500.github.io/macro/ It is one of my least popular explorable explanation but also one of my favorites.

Re: The Era of Very Low Inflation and Interest Rates May Be Near an End

#90

Post by cortesoft »

lrem wrote: post #86
matte_black wrote: post #3

I'm not familiar with a world where interest rates and inflation aren't low. What should I expect?

Imagine this was done quickly: 1: everyone who's got a borderline repayable mortgage to get anything in the overheated market and hasn't increased earnings by some 20-30% since then goes bust. This creates a wave of increased supply. 2: everyone's willing to buy gets way less loan amount for same repayments. This severely reduces demand at current prices. 3: 1+2 force prices down, meaning some people end up owning ba…

Wait, isn't your number 1 the exact opposite, unless you got a variable rate mortgage? If you got a fixed rate mortgage, inflation is your friend, since inflation will decrease your debt.
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