I need to listen to Powell right now but this is the right place for it, There is no "think" about it, the fed follows rate go ahead and chart fed Funds rate vs 2yr treasury it's not an opinion.
It is also not always true that QE artificially lowers rates in any substantive way, what it does do is push money up the yield curve. The Fed doesn't even buy long term treasuries yet look at their yield. Just be careful in general if you want to wade into the world of having opinions on monetary policy that you are acting on. People love to make elementary level statements that show they don't really understand the markets they are talking about, even if there is some truths in the sentiment in general.
That's fair, thanks for the response.
Its my understanding that controlling the short duration bond rates will have an effect on the entire curve but admittedly that whole argument goes further in the weeds than I'm capable on going. The real point I'm interested in pursuing would be that a substantive raise in rates is nearly impossible in the currently environment. I can see rates being raised in the short to medium term for political purposes but a sustained rate hike seems impossible when you consider the amount of debt that would need to be serviced at those higher rates.
as of last year:
Each one percent rise in the interest rate would increase FY 2021 interest spending by roughly $225 billion at today’s debt levels.
That doesn't seem sustainable with an ever increasing debt ceiling. So when taking a shorter timeframe into account (trading) that may be more or less irrelevant I struggle to see how you get out of the choice between a hard or soft default eventually.
2000 gov spending was ~1.8 trillion
2008 gov spending was ~$2.9 trillion
2021 gov spending was ~$6.82 trillion
I'm sure there isn't much argument here that we have a debt/spending issue in this country, that's not my point. I look at that clearly accelerating trend and have to wonder how could an substantive rate hike be sustained for any amount of time?
In fiscal year 2020, the government’s net outlays for interest totaled $345 billion, equal to 1.6 percent of gross domestic product (GDP) and accounting for 5.3 percent of total spending.
That's with nearly 0% interest rates.
Perhaps I don't have a full understanding of monetary policy but I am curious how any talks of substantial interest rate hikes for longer time periods can be taken seriously? Sovereign debt levels seems like the sort of thing that can be ignored... right up until it can't be ignored anymore. $30 trillion debt to be serviced, how much longer do other sovereigns continue to buy and value that debt? Russian/Chinese accumulation of gold, talks of petro-Yuan (~25% of total Saudi oil is traded with China), bifurcation of international trade over Russian sanctions, these all seem to be indicators that perhaps the view that US debt is valuable is coming to a close.
I'm curious if you, or anyone, are of the opinion that increased rates can be sustained and how that would work. I'm still learned, but the more I understand how money works the more convinced I am. What am I overlooking?
EDIT: Would sanctioning/cancelling fx reserves for Russia (potentially China) be the same a deleting outstanding debt? I think I read the other day that China hold ~$4.3 trillion FX reserves
Moglyzoke Moogleman
looks like the jump is based on earnings and China backstopping their markets. i cant stress enough to set some stops today. Unless you think this is going to run back up over $1 (I doubt it will), this spike and possible squeeze might give you an opportunity to recapture some of your paper loss.
pulse2.com
