Tuesday, September 28, 2010

Long Term Interest Rates

It was raining very heavy today and thus the ride home was extra special long! No time tonight, so just a quick note.

Long Term Interest Rates
I have written many times about how interest rates will have to stay ultra low (suppressed or otherwise) for a really long time. The reasons are many but the biggest that jumps out is housing and a reliance on free credit for a weak economy. Looking out I do not think it nuts to say that rates could be less than 1% (as set by the FED) for 10 years or more. How is that for an "extended period"?

Karl Denninger gets a little excited along these lines in a post today and I would suggest you check out the math he does. If rates on US debt go to 5% things get ugly in a hurry:
Avoidance Will Not Work

We are proceeding towards even more QE and maybe other stupid pet tricks as yet unknown, as hinted at today by FED member Dennis Lockhart (via Calculated Risk):
I cannot tell you how the economic policy story will play out. I can assure you, however, that the Fed has scope for further action to influence the course of recovery. And, importantly, I believe the Fed and the committee have the will to act—or not—as demanded by economic conditions in the near term.

I would again ask at what point will a clear plan that takes into consideration the LONG TERM ever be articulated by the FED? It strikes me as very weird that an entire financial system is rested upon a US Treasury and a FED that have been less than forthcoming about many things. It is my future (yours too!) on the line, how come I don't get an explanation?

Have a good night.


mab said...

Long rates are low and going lower.

DENNINGER'S ASSUMPTIONS ARE OUT IN LEFT FIELD! (I couldn't resist the all caps). Why 5% interest rates? Why not 105% rates?

I'm thinking about a junket to the Bahamas or another island this winter. If I recall, you were just there. Any suggestions?

EconomicDisconnect said...

Hey mab, thanks for swinging by.

Long rates have been going lower and lower, but at some point that will change unless we are to duplicate Japan's 20 year paryy which will have other nasty side effects here that were missing there. Karl's post was a bit over the top, but the math was worth considering.

The wife and I go to the Bahamas every April for our anniversary (we were married there as well) but a special long weekend trip is booked for October due to some scores in the market panning out.

We stay at the Sandals resort which is just unreal awesome. Other good ones are Breezes and the Sheraton. Unless you are rich and love the circus do not go to The Atlantis!

GawainsGhost said...

Here's why I love ZIRP. Because it guarantees the probablility of the Dallas Cowboys making, much less advancing in, the playoffs effectively zero. Part of me wants to take that bet. Another part recognizes the reality of the situation and won't.

EconomicDisconnect said...

I would have thought a sound thrashing of the Texans would have lifted your Cowboy mood!

scharfy said...

Denninger lost his mind.

Dude has gotta be short the market, or something.

Every other post involves the world ending.

Anyway - I'm thinking of a good SNL short, where Denninger (played by the late Chris Farley or the late Sam Kinison) is on the FOMC board. Bernake is played by John Lovitz and Geithner is David Spade.

Hilarity ensues.

Chiefs 3-0
Steeler 3-0
Bears 3-0

Anybody see that?

mab said...


Karl's post was a bit over the top, but the math was worth considering.

What can't be paid won't be paid. Denninger never explains why rates will or must rise. His capital formation meme has some merit longer term, but the world has a capacity glut at present. Creditors always want as high a rate as they can get. But they can't get what isn't there (and they are already being given a free lunch). And remember, unlike Greece, Iceland, Latvia, Argentina, et al all this debt is in domestic currency. Rates are going lower imo.

Unless you are rich and love the circus do not go to The Atlantis!

Thanks for the heads up. Atlantis was at the top of the list, lol! I'll take a look at Sandals.

EconomicDisconnect said...

you make great points. Surely rates are trending lower, but how much of that is deflation fears,panic, chasing minimal yield, or just a circle swap between the FED and big banks? Surely some combo of all of them. As a fan of Marks writing you must know mean regression and after a decade of ultra low rates, a move up is not unthinkable.

Yeah, The Atlantis looks great online but it is a nut show and SO expensive. We went last April for a night of gambling and while I am drinking up a storm and smoking a few cigs there are 6 year old kids roaming the floor with no parents and 12 year old girls that look like "working ladies", again while the parents are at the tables I guess. We tried to at at a buffet and it was $50! The Sandals is all inclusive, all you can eat and drink.

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