81–90 of 112 posts
Earlier quoted context omitted.
Are there no hedging instruments for something like this?
Yes, you can buy an interest rate swap. But I don't know how readily available they are to small businesses.
This shows a level of confidence in the banking sector that I find questionable. Risks associated with raising bond interest rates were one of largest factors in the recent bank failures. Surely more bank failures would be seen as worse for the economy than inflation. If more, larger banks fail in the next twelve months then the Federal Reserve will be sheepish about raising interest rates for the next hundred years.…
No, it doesn't.
Protecting the banking sector isn't part of the monetary policy setting mandate.
> Risks associated with raising bond interest rates were one of largest factors in the recent bank failures. Surely more bank failures would be seen as worse for the economy than inflation.
No, in terms of the Fed mandate, they are not. More business failures, including of banks, are a normal and expected cost of contractionary monetary policy.
> If more, larger banks fail in the next twelve months then the Federal Reserve will be sheepish about raising interest rates for the next hundred years.
They weren’t for the next hundred years after the wave of major banks that failed or needed intervention to avoid failure in the 2007 crisis, obviously, or after the huge number of bank failures during the high rate regime in the 1980s, so...probably not.
> In inflation stays high then it seems likely the Federal Reserve will keep pushing those interest rates higher and higher until something breaks and we enter crisis mode.
Surez if inflation (which is already low but has not stayed that way for as long as the Fed would like) were to bounce back up so the 12-month trailing rate stayed high rather than continuing to settle back to normal, that would be the Fed response. No reason to think that’s likely.
> Personally, I'd like to see Congress take more action to reduce inflation
That, this late in the game, would be a very good way to guarantee an overshoot the opposite way we just did, which would be worse than leaving the foot on the economic gas too long was.
Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…
Fun fact'! 30-year fixed rate mortgages is a uniquely American thing. Most other countries are adjustable rate mortgages, even for boring primary residential loans.
Lots of uncertainty in the press conference following the interest rate announcement. Seems like the Fed is preparing for the possibility of more restrictive actions in the future, but is waiting for more data to see if such actions are needed. I expect the market to place a lot more weight on data released over the next few weeks.
Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…
Fun fact'! 30-year fixed rate mortgages is a uniquely American thing. Most other countries are adjustable rate mortgages, even for boring primary residential loans.
Earlier quoted context omitted.
A de-dollariztion and a move to what? Yuan? Ruble? Bitcoin? Sure countries might be unhappy with the dollar as of late, but there really is no serious competitor. It's like being upset with the Ritz and threatening them with moving your stay to the Comfort Inn.
If people start hating the Ritz's policies and prices someone will eventually build a comparable competing hotel, a ready to go alternative doesn't have to already exist. We've created incentives for alternatives to the dollar to spring up, we need to either pray to God they somehow don't or stop incentivizing the alternatives.
Lots of smoke in the comments here. The Fed is doing what needs to create relative stability. Uncomfortable, but real. Demand is outstripping supply and prices are going up. The least painful option is raising interest rates. Alternatives are hyperinflation, (very bad), or various price fixing schemes (which have literally never worked despite many attempts and are even worse in the ultimate outcomes). There are lots…
Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…
> 12% interest rates just incase a politician decides to give away free money for a few years? High interest rates = "giving away free money"? I thought low interest rates was giving away money?
This shows a level of confidence in the banking sector that I find questionable. Risks associated with raising bond interest rates were one of largest factors in the recent bank failures. Surely more bank failures would be seen as worse for the economy than inflation. If more, larger banks fail in the next twelve months then the Federal Reserve will be sheepish about raising interest rates for the next hundred years.…
> "...the Federal Reserve will keep pushing those interest rates higher and higher..." They really can't raise interest rates much above 5%, this follows straightforwardly from observing how much of the national budget is consumed by debt service as a function of the interest rate. (Higher rate = larger fraction of budget allocated to debt service, obviously.) If they go above five-ish percent, this implies that they…
They really can.
> this follows straightforwardly from observing how much of the national budget is consumed by debt service as a function of the interest rate.
Decoupling monetary policy decisions from that kind of fiscal concern is a substantial part of the reason for an independent central bank setting monetary policy.
> If they go above five-ish percent, this implies that they'll need to either A) raise taxes to a level that would likely inspire mutiny, B) greatly reduce borderline-impossible-to-cut parts of the budget such as the military industrial complex + welfare spending broadly construed, C) increase productivity by a lot, D) monetize the debt or E) default on the debt.
Note that the first “they” is the Federal Reserve and all the other “theys” refer to Congress.
Also, while government borrowing costs tend to move in roughly the same direction as the fed funds rate, they very much aren’t the same thing and can be very widely separated.
Just a perspective to share from someone trying to buy property for a small business(since most people think about it from a residential POV). Unlike residential mortgages, corporate loans are not fixed interest rates. They are all adjustable. What in 2020 seems financially sound, becomes impossible a few years later. I can't imagine how other companies do this, do you just make sure your business can handle 12% inte…
If you do make this assumption, then your present value of the real estate will ensure you always get outbid by someone with looser expectations. The conservatism of the market is set at the ability to leverage by the lunatics at the margin.