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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

#191

Post by simonh »

shams93 wrote: post #188
simonh wrote: post #186

Earlier quoted context omitted.

That just puts the crush on the sectors that Offer low wage jobs, increasing their costs and the prices they must charge their customers. The people who do get those jobs earn more, but there will be fewer of them, making the poverty trap even deeper. I’m beginning to think a low Basic Income might help, maybe as little as a hundred bucks a month. The problem with current BI tests is they are Big Bang experiments - b…

If we stop running a military empire we probably have enough peace dividend to provide a $45,000 a year BI that would truly make a difference. To do it we have to end standing armies and let all of the non-violent offenders out of prison. We would have to make deals with all the other countries to put an end to standing armies as a thing and use the UN to cooperatively resolve conflicts. The amount wasted on the mili…

Wasted. I'm sure Iran, Bashar Al Assad, Putin and goodness knows who else would completely agree with you.

Anyway, the entire US military budget coms to about $2350 per adult American. Emptying half of the prisons would about double that (taking into account the productivity of released prisoners, the above includes full economic costs of incarceration). Only about $40,000 each left to find the funds for.

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

#192

Post by patrickk »

Xylakant wrote: post #113
mattmanser wrote: post #101

Earlier quoted context omitted.

In the UK mortgages aren't fixed for the lifetime of the mortgage. Not sure about the rest of the EU. Ours are like 3/4/5 year fixed rate then revert to a bad variable rate, at which point you get a new mortgage.

In Germany, 10 year fixed mortgages are common, though shorter terms get you lower interest.

I've heard of fixed rate mortgages up to 15 years, at interest rates as low as 1.6%-1.7% if you have a secure job and an established relationship with a landesbank.

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

#193

Post by skybrian »

maxsilver wrote: post #62
pembrook wrote: post #45

Earlier quoted context omitted.

Just because housing prices in NYC and healthcare costs have risen fast doesn't mean inflation is high. This is why we calculate these numbers using a broad basket of various goods and assets.

Sure, but housing prices (nearly everywhere) have risen fast and healthcare costs (nearly everywhere) have risen fast. Education and Child Care have too. The criticism isn't "inflation should be based on NYC rent." The criticism is "the basket of goods weighs nice-to-haves too highly, and important needs like rent/healthcare/education too low". So while inflation (as officially defined by the consumer price index) is…

Even when correctly measured, there will be a lag because there are many people who don't pay the new prices right away, and inflation is averaged over everyone.

Homeowners don't experience higher housing prices unless they decide to buy a new home. (Though they might have to pay higher property taxes.)

Renters might not experience higher rent right away, either due to rent control, or having a landlord that doesn't raise prices as fast as the market.

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

#194

Post by simonh »

rndmize wrote: post #83
quadyeast wrote: post #15

Earlier quoted context omitted.

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.

Come on. If people stopped posting "I saw X once, so your national statistic is wrong" that would wipe out huge swathes of comments on.... OH!

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

#195

Post by simonh »

kazinator wrote: post #149
isostatic wrote: post #132

Earlier quoted context omitted.

> It only makes sense to go fixed rate if you're very sure that the interest will climb over the next term. That's not true. I chose to pay an extra £30 a month on my mortgage because I'm not sure rates won't rise over 5 years, and I want to be confident of budgeting for the the next 5 years. I'm confident rates won't go down, but rates going up could affect me. Think of it as insurance. I don't take home insurance b…

Do you apply the same reasoning for the last payment of the fixed-rate term? £30 because you're not sure that the rate won't rise over the last month and end up costing you £60; good insurance?

I think fixed rate can make sense in some circumstances, but you need to factor in the expectation of eventually refinancing. But then frankly you should expect to refinance anyway. It's highly unlikely that the same mortgage will turn out to be just a suitable to your circumstances and the competitive landscape in 20 years time as it is now, or even in 10 years, whatever mortgage you choose.

Here's my (partial) heuristic. If you see adverts on TV for fixed rate mortgages, don't get one.

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

#196

Post by dannyw »

trustno1 wrote: post #8
matte_black wrote: post #3

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

> inflation aren't low Inflation is only low if you trust how the Federal Reserve is calculating it. Personally, I think the weightings they assign to various categories are intentionally incorrect. Anyone who lived through 2008 knows better than to think inflation was sub-2% -- yet many savings accounts have been paying 0.01% interest for over a decade. The fed's monetary policy is taxation without representation.

The Fed doesn’t calculate CPI, but CPI ‘adjustments’ are indeed fundamentally cherry picked to lower the rate. There are a bunch of crazy mechanics like “hedonistic substitution”, min() functions, and adjustments that by definition can only adjust the rate down and not up (eg ‘quality increase’ in basket of goods = adjust CPI down by the ‘quality increase factor’, but quality decrease does not adjust CPI upwards).

People use the million prices project to argue CPI is correct, but misses the point that the project uses a regresssion model to automatically multiply their index by an adjustment factor to match CPI - and that adjustment factor has only gotten smaller and smaller (ie their index reports higher inflation growth than CPI) as time went on.

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

#197

Post by fergie »

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

Yes, put property prices have shot up PRECISELY BECAUSE INTEREST RATES ARE SO LOW. When interest rates and inflation are low- asset prices such as property go up.

High(ish) inflation/interest is a really good thing for workers because although repayments on their loan may briefly be high they decline in real terms at a much faster rate. The best bit is the principle declines at a much faster rate too- meaning that a worker can in fact pay off a mortgage in a decade or two.

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

#199

Post by samsonradu »

autokad wrote: post #178
ahartmetz wrote: post #43

Earlier quoted context omitted.

"Collapse of the housing market" is a funny way to talk about affordable housing. It assumes that everyone already owns a house and will have a problem if / when the value drops below the remaining debt.

funny? when housing markets collapse, the economy goes down and people loose jobs. when you dont have a job, you cant buy a house. one of the many reasons why housing market collapses are not refered to as affordable housing. don't need to look further than 2007-2009 to see an example of this. You can see here that home ownership did not go up: https://en.wikipedia.org/wiki/Home-ownership_in_the_United_S...

> when housing markets collapse, the economy goes down and people loose jobs.

I believe the causality goes the other way around. Economy goes down, people lose jobs and then the housing market collapses. It's funny to keep a bubble inflated to protect people from their mistakes.

People always get overleveraged (encouraged by the government and the banking sector) to buy real estate when the economy is doing fine, what else could one expect to happen when things go south?

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

#200

Post by hvidgaard »

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…

That is not quite what he is saying. People in the big cities in Scandinavia have so much debt and variable interest loans that they will be hit hard by an increase in interest. It'll eat away disposable income and in general lower economic activity.

My debt in the house has fix interest for 5 year periods, so if the interest at the start of next period is higher, it's going to cost me disposable income.

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