Why are interest rates so low?

[dmccarty]

The interest rates are low because of all the tens of trillions of debt the US government holds. If interest rates go up to where they were in the 80s, all of the money collected in taxes would not be enough to pay just the interest on the debt.

Back around 1990, the US budget was around a trillion dollars and the interest payments on nation debt was $200 billion a year. The debt payment was high because of the high interest rates at the time.

Having a debt payment of 20% of the budget was criminal. Think of the tax cuts and/or things that could have been bought. My issue was, how much IS $200 billion? It is a number but what does it represent?

At the time, the US Navy had 14 or 15 aircraft carrier groups. A carrier group consists of a carrier, aircraft, at least one cruiser, frigates, destroyers, supply ships, and one or two nuclear attack subs. This would have cost $10-20 billion. Even if the cost was $20 billion for a carrier group, it meant the US could have bought 10 more carrier groups with the payment on the national debt. To put it another way, the national debt payment would have allowed the US Navy to expand its fleet by 2/3s from it's starting point. At a minimum.

THAT is how much $200 billion was worth.

The US government, and us, are in between a rock and a hard spot. Increasing interest rates will increase the debt payment, and because the US government does not live within it's budget, this will increase the debt, which increase the debt payment, and on and on and on.

Flip side is, as Warren Buffet said, the way for a debtor nation to pay off its debt, is to devalue the currency it pays to the countries owning the debt...

 

[TheMan419]

Banks love to make money by transferring it from their customers to the bank. IMHO interest rates of .01% are a ripoff. If you would like to earn 9.62% then invest in Treasury I bonds.

Individual - Series I Savings Bonds FAQs

Yes but that rate resets every 6 months based on inflation. You cannot cash it for 5 years without losing 3 months worth of interest. So if inflation tanks again you will get a very low rate of return.

 

[Larry Caldwell]

The ten second sound bite and meme psychology has led to an absence of a coherent plan to address current challenges. We have modern historic precedent for our inflation spike. Johnson's "guns and butter" deficit spending piled up the money explosive, and the Arab oil embargo touched off a decade of extreme inflation. Does anything sound familiar? Change the names to *****'s tax cut and the Russian oil embargo and we're right back where we were 50 years ago.

In the '70s we were wedded to an energy infrastructure based on choices from the 1920s. A century later we are still trying to base our lives on an extractive technology that can be interrupted at multiple points in the extraction-transportation-processing-transportation chain with multiple opportunities for profiteering.
We have the ability to break the century-old cycle of energy price inflation, but we don't have the will. It would require a restructuring of society for better energy efficiency, as well as developing alternative energy resources.

Unfortunately, market manipulation will favor inflating energy costs while restricting competition from new sources. Where do you think all that money is going?

 

[Larry Caldwell]

Rekees
Where do you buy them, and how long do you have before they mature?

I bonds — TreasuryDirect

www.treasurydirect.gov

 

[Snobdds]

The ten second sound bite and meme psychology has led to an absence of a coherent plan to address current challenges. We have modern historic precedent for our inflation spike. Johnson's "guns and butter" deficit spending piled up the money explosive, and the Arab oil embargo touched off a decade of extreme inflation. Does anything sound familiar? Change the names to *****'s tax cut and the Russian oil embargo and we're right back where we were 50 years ago.

In the '70s we were wedded to an energy infrastructure based on choices from the 1920s. A century later we are still trying to base our lives on an extractive technology that can be interrupted at multiple points in the extraction-transportation-processing-transportation chain with multiple opportunities for profiteering.
We have the ability to break the century-old cycle of energy price inflation, but we don't have the will. It would require a restructuring of society for better energy efficiency, as well as developing alternative energy resources.

Unfortunately, market manipulation will favor inflating energy costs while restricting competition from new sources. Where do you think all that money is going?

Larry, I see you don't understand how targeted tax cuts work....then you try to draw parallels to the 60's, which is crazy because nothing is even remotely close.

Educate your self...

https://thehill.com/opinion/finance...enefited-middle-working-class-americans-most/

 

[MossRoad]

...

Educate your self...

 

[Snobdds]

Larry might be a little old, but don't make fun of him.

 

[npalen]

Yes but that rate resets every 6 months based on inflation. You cannot cash it for 5 years without losing 3 months worth of interest. So if inflation tanks again you will get a very low rate of return.

Yes, that is exactly what I hope will happen and if it doesn't it could be called hedging the bet! I would gladly lose three months of interest to see rampant inflation under control!

 

[Larry Caldwell]

Larry, I see you don't understand how targeted tax cuts work....then you try to draw parallels to the 60's, which is crazy because nothing is even remotely close.

Educate your self...

https://thehill.com/opinion/finance...enefited-middle-working-class-americans-most/

Watch the birdie. While you were raking in the dough, the massive economic stimulus on top of an already expanding economy was burying you in guano. Interest rates are low because the Fed bought treasuries to keep them low, and all that money went right into the economy. In the olden days when there were actually adults in this country, this was known as "monetizing the deficit" and was considered a sign of the impending apocalypse. If nobody is willing to loan the government that much money, just print more.

Asset inflation has been roaring for several years now. People who think they understand economics were delighted by the gains in their stock portfolio, blithely ignoring the fact that the cash value of any investment depends on a functioning monetary system. The Fed is dancing on a tightrope without a net. There is no way they can sell their bond portfolio without bringing down the economy. There is no way the federal government can service its debt if interest rates rise enough to make bonds an attractive investment.

I expect a crash that will make 2008 look like a Sunday picnic. I expect everyone's taxes to double, because the US Government has frozen bond redemptions, and has retreated to cash only operation. If you don't like that scenario, close your eyes, click your heels together three times, and chant, "It can't happen here."

 

[Larry Caldwell]

Larry might be a little old, but don't make fun of him.

I tried to start a thread on inflation here a year or so ago. It went nowhere, and I can't even find it in a search. IIRC, one phrase I posted was, "If current economic policy does not cause inflation, we know nothing about the cause of inflation."

I have a low opinion of economists. Their theories have little predictive value. I'm more of an historian. I am old enough to have seen this scenario before, and have studied enough history to know our current crunch is not unique. Substitute national debt for war reparations and we look just like the Weimar Republic.