Today on CNBC they discussed the rising 10 yr interest rate. Soon to reach 5%. That part of the curse already seems normal. And maybe can overtake short term rates un-inverting the curve.
Is that likely? Implications?
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That is the goal of reducing the money supply.
This is a normalization. The pain though is to asset prices. Higher yields will persist.
But, but, but I thought the inverted curve was an absolute predictor of the looming recession? Now it might un-invert and everything goes back to normal? What kind of predictor is that?
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It looks like the market has given up fighting the Fed.
@pauleckler, in previous rounds of fed funds tightening which caused inversion of the yield curve, the curve returned to its normal positive slope because the long-term Treasury yields fell. In the current round, the long-term rates are rising, not falling. There has been no recession. The rates are returning to normal after years of Federal Reserve repression (QE).
The implication is that the free bond market traders, who set interest rates by supply and demand before the Fedâs massive manipulation, are returning longer-term rates to normal. These are not excessively high rates. The historic yield of the 10 year Treasury for decades was inflation plus 2% to 2.5%.
You can see decades of previous rates by sliding the vertical red line to the left in this chart.
The implication is that companies that became dependent on ultra-low repressed rates will be forced to re-finance maturing debt at higher rates and may default. Also, the mortgage rates will stay high which will make housing less affordable.
Another implication is that the value of existing Treasuries ($trillions) will fall, hurting bond holders including individual and institutional investors. The longer duration bonds will fall most.
Wendy
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Sometime around right now would be an excellent time to actually use sane economic management, which would entail:
-
raise taxes significantly (enough to enable 2) without hitting consumption by > maintaining tax rates on lower incomes and
raising taxes and enforcement on all the rest of us -
the fed steadily lifts foot off monetary brakes allowing short rates to stabilize and conceivably fall
None of this will happen, is not even close to imaginably possible⌠because why?.. deeply engrained civil stoopidness.
david fb
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The only way out of this is our factory buildout. Produce it or go home.
The taxes are studied, and the yields are studied. They are both purposeful.
We are not in any sort of deep recession. The recession now or soon wonât be deep. Demand-side economics are far more successful for the nation.
Forget the slave ownerâs group of economists who promised us nothing as a nation. From Madison/Jefferson till now those two were always failures in policy making. We have all heard that story again until 2020.
Enforcement alone of the higher tax rates is probably enough. And mostly, eliminate deductions - full stop.
Our tax rates are progressively graduated to apply lower taxes at lower incomes. The specific rates and break points could be debated and tweaked but with a reasonable definition of âlower incomesâ and enough break points to avoid sudden giant steps is a rational way to tax.
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You have my 100% agreement. We might need more as infrastructural needs with high payoffs become more apparent, but for now just actually enforcing the tax laws and giving the Fed a breather would be transformative to both federal deficits and strength of economyâŚ
But Nope. Too stooopid.
david fb
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The reason the US was so successful in the 1950s were the deductions. R&D was at its all time high, factory building at its all time high. Yes you are aiming for a full stop. Just the wrong kind.
Factory building needs an impetus. It should not be left to chance. The outlays of capital are large.
I get I am discussing corporate taxes. There are also LLCs with that we get B2B sales which depend on income tax deductions.
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Nothing from the 1950s economics is relevant today.
The world has moved on in so many ways and it wonât be going back.
Arguably, the policies of the 1950s led to the policies of the 1960s then the 1970s etc. etc. etc.
No one even wants to return to the 1950s except the reactionaries.
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I donât think I am a reactionary, but I believe there is much to be learned from the 1950âs economic policies, which is not to say they should be slavishly followed, but neither should they be ignored.
Higher taxes on the highest incomes would be a good start. Higher taxes on corporations would be a good second step, although as Leap points out, deductions for R&D, capital building programs and others which produce domestic jobs would be a positive, too.
I would also look to some sort of âtax levelingâ tax, which is to say if a company is using exotic revenue shifting strategies to minimize taxes here - while paying lower taxes elsewhere - then that would come into play. And likewise, foreign companies which are either tax advantaged or outright subsidized would pay a âtariff likeâ fee on products and services to be sold in the US. No sense taking advantage of lower prices elsewhere if it means our own citizens donât have any jobs to make money with. (Iâm all for using international trade to encourage the most efficient production groupings, but not when it is distorted by extra-government incentives and/or in dire cases to preserve US jobs.) Yeah, that one doesnât come from the 50âs, but then we had protectionism of a different sort (i.e. the rest of the world was in rubble.)
There is much to be learned from history, even if sometimes that just what should be avoided. But often there are positives which have somehow been forgotten along the way.
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That statement made zero sense and was not backed up.
You are catching on. Except we are entering the K cycle a cycle forward as the Europeans had after WW II. That led to 40 years in the Demand side phase and a wealthier society than what most Americans have.
It really all does revert in this country to Hamilton/Washington versus Jefferson/Madison. We discover that using innocent people as if aristocrats made perfect sense to the debt-ridden Jefferson a lazy man who hated doing his job.