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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

#31

Post by Retric »

refurb wrote: post #16
jdblair wrote: post #6

Earlier quoted context omitted.

Loans cost more. The interest rate on my first mortgage (in the 90's) was 7%.

Back in the 1970's a 12% interest rate on your mortgage was considered pretty good! It basically reduces buying power for real estate. Using the google mortgage calculator and assuming a $1500 max monthly payment. At a 3.92% (today) rate you can borrow ~$320K At an 8% rate you can borrow ~$200K A 38% decrease in buying power. It's already happening in Canada as the gov't is trying to slow down the real estate market…

It also made the idea of a starter home more meaningful. Your monthly payments quickly became meaningless especially if you got any kind of a promotion.

At 5% inflation if you pay 1000$/month in year 0 it feels like 614$ / month in year 10 and 377$ / month in year 20.

At 1-2% inflation the loss of the interest tax deduction over time as you pay more principle and less interest means home lone feels about as expensive in year 0 and year 20.

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

#32

Post by trustno1 »

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.

The Fed's monetary policy exactly fits the definition of "taxation without representation".

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

#33

Post by pishpash »

tanderson92 wrote: post #18

> The shift looks to be driven mostly by a rise in investors’ expectations for future inflation. In the United States, prices of inflation-protected bonds imply that investors currently expect consumer prices to rise 2.09 percent annually over the next five years, up from 1.65 percent expected in September. This claim that the shift is due to inflation expectations is inconsistent with the data. Most of the rate incr…

It has been both, about half and half.

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

#34

Post by sdhgaiojfsa »

adventured wrote: post #30
sdhgaiojfsa wrote: post #13

Earlier quoted context omitted.

NY Case Schiller home price index is flat to slightly down over that period, actually. This is for the NYC metro area. I could be convinced that rent has doubled with housing price flat, but I'm guessing not? https://us.spindices.com/indices/real-estate/sp-corelogic-ca...

Nationally there are some strong indications of housing inflation occuring. The median new US home price is up about 40% over the peak of the 2005-2006 real estate bubble, and it's up roughly 100% since 2000-2001: https://i.imgur.com/sec7wZz.png

Sure. I was only responding to the New York part.

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

#35

Post by tanderson92 »

pishpash wrote: post #33
tanderson92 wrote: post #18

> The shift looks to be driven mostly by a rise in investors’ expectations for future inflation. In the United States, prices of inflation-protected bonds imply that investors currently expect consumer prices to rise 2.09 percent annually over the next five years, up from 1.65 percent expected in September. This claim that the shift is due to inflation expectations is inconsistent with the data. Most of the rate incr…

It has been both, about half and half.

Right, so I don't understand the confidence with which the reporter is mentioning only one and implicitly attributing the rise exclusively to it. Even if you use 50% of the effect as being due to one or the other as the threshold, it's actually been more due to real interest rate increases (only 55-60% so you're right it's like half and half), so the piece is just really baffling.

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

#36

Post by [deleted] »

adventured wrote: post #27
matte_black wrote: post #3

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

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…

[deleted]

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

#38

Post by astura »

adventured wrote: post #30
sdhgaiojfsa wrote: post #13

Earlier quoted context omitted.

NY Case Schiller home price index is flat to slightly down over that period, actually. This is for the NYC metro area. I could be convinced that rent has doubled with housing price flat, but I'm guessing not? https://us.spindices.com/indices/real-estate/sp-corelogic-ca...

Nationally there are some strong indications of housing inflation occuring. The median new US home price is up about 40% over the peak of the 2005-2006 real estate bubble, and it's up roughly 100% since 2000-2001: https://i.imgur.com/sec7wZz.png

Raw numbers are meaningless outside of context.

The Case-Schiller index the GP was referencing takes CPI inflation into account.

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

#39

Post by pishpash »

adventured wrote: post #27
matte_black wrote: post #3

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

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…

Why does loaded up with debt imply interest rates will be low? Most debt is fixed-rate and not inflation-adjusted so there is a strong incentive to drive up inflation and interest rate with so much outstanding debt. This may fail in which case you get a deflationary collapse, but a priori it's not clear at all which direction things go.

If the stagflation era of the 70's is any guide, the world will undergo a significant bout of inflation to clear the plate and the holders of USD (playing the role that gold played then) will be wiped out and it will no longer be the reserve currency.

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

#40

Post by craftyguy »

MrEldritch wrote: post #10

"And 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'm confused as to why either of those effects are supposed to be good things.

Those aren't the 'good things' that trade wars are supposed to bring. Some people believe trade wars bolster local economies, by giving local manufacturers a price advantage for their goods.. thereby increasing demand for local products and "increasing jobs". I don't think it has ever worked out that way, despite all the rhetoric.
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