301–310 of 698 posts
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Credit card debt is extremely high right now and subprime loan defaults are rising fast. In essence, a lot of people are tapped out.
Credit Card report https://www.newyorkfed.org/microeconomics/hhdc New all time high
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(This situation might not be familiar to US commenters, who can lock in an interest rate for their entire mortgage).
US commenters hopefully know they can re-finance when rates go down. Locked in, with the option of re-fi'ing. Only possible when rates drop but we're yet to have a period of 30 years of continually rising rates.
The shock from the Target and Walmart earnings that caused the single largest drop since the 80s for both companies was not just the pain of inflation that is adding to their costs but also from rising inventories because consumers seem to be already sacrificing discretionary purchases. Will be interesting to see if discretionary spend continues to meaningfully drop and whether we will actually start seeing price cut…
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Zero percent interest rates cause a bubble because valuations have to increase to the point where their forward-looking returns are a risk premium above bonds. When rates are zero for a long time, that means valuations go very very high. When rates come back up, valuations drop. Speculation can add further overshoot in both directions.
Are their countries with negative nominal rates without asset bubbles? Have their been high interest rate countries with asset bubbles? E.g., dutch 1600s interest rates or 16% during Tulipmania.
That's very hard to know, but to be clear it's negative real rates that drive the bubbles. There's much more incentive to speculate when cash is a hot potato. For example Japan is much less bubbly these days than in the 1980s, even though nominal interest rates are lower now.
> Have their been high interest rate countries with asset bubbles? E.g., dutch 1600s interest rates or 16% during Tulipmania.
Presumably, that's why Tulipmania was confined to tulips, instead of spreading euphoria to absolutely every asset class. Even with high rates it's absolutely possible to have local bubbles in things like tulips, beanie babies, or Dogecoin. It only takes the promise of high real returns. When real interest rates are negative, even the promise of zero real return becomes mouthwatering.
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You are switching topics. The point is that there will be plenty of funds inflow to support housing market.
Would you like to place a wager? I bet that the median home price in tech-centric metro areas (seattle, sf/bay, la, nyc) will decline by 10% or more in July 2023 versus July 2022.
> In the early 80s, the G7 economies tightened the money supply, raising interest rates dramatically, in an effort to bring inflation under control. This article points out a similarity between the early 80s and now. So I think it's appropriate to point out a major difference as well. Consider this chart[1] which shows both the short term interest rate (Federal Funds rate) and long term interest rate (10-year Treasur…
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Can you explain why interest rates will HAVE to rise above inflation for it to slow down? CPI is already slowing down, although we have some very limited data points currently. A lot of inflation is driven by expectation, and raising interest rates is a way to tame those expectations for consumers, but I don't think the rates have to arbitrarily go above inflation to tamper it.
The Taylor Rule explains it https://www.investopedia.com/terms/t/taylorsrule.asp r = p + 0.5y + 0.5(p - 2) + 2 Where: r = nominal fed funds rate p = the rate of inflation y = the percent deviation between current real GDP and the long-term linear trend in GDP As I said, the FED is betting that inflation is being caused by supply chain issues alone. This is obviously not true. It will get worse, so much worse, because…
= 1.5p + 0.5y + 1
I'm going to explain what has happened so far. What happens next entirely depends on how inflation continues and the feds reaction. 1. We had zero percent interest rates. This causes the value of assets with cash flows out into the future (think speculative tech, Tesla) to accelerate. 2. We had massive herding in megacap tech. These valuations are high in part because for a decade you would not have beat the index wi…
We also had a previous US administration handing out cash like candy in the form of stimulus checks.
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If inflation somehow keeps rocking at 8.5% for a decade straight we have a much bigger problem on our hands than the relative yield of a treasury bond. Technically anything is possible…but I’m willing to risk saying that won’t happen.
https://en.wikipedia.org/wiki/Appeal_to_consequences I'd say that yes, we have a much bigger problem on our hands than the relative yield of a treasury bond.
I don’t have any good mental tools to distinguish between useful and useless economic predictions like this. How does HN navigate this kind of thing?
I just buy a little bit of monero, funnel money into 30+ year tax advantaged retirement savings, and work on my skills I guess