Rates up

That rates would go up at the first opportunity after the election was as certain as anything in economic policy can ever be. It was just as certain as knowing that with a Democrat President, that they would not be raised until after the election was over. I thought it would be more, but the Fed has now stated that there will be three further increases in 2017 rather than two, so there must have been quite some debate. And there is no certainty they will each be a quarter of a percent either.

Not much more to say other than that this will work well for the United States, and given that rate reductions are now off the table, may work well for us, if we can follow along. Low rates will kill you. You are invited to read my article from the October Quadrant: That’s the Way the Money Goes. I will mention, however, that the title, the summary at the front and the lead-in para – the bits in black – were not written by me and do not quite say what I think. Here is how it should begin:

Low interest rates have been the mantra of economic policy for quite some time, even more so since the various public-sector stimulus packages that followed the GFC have been accompanied nowhere by anything like the kinds of recovery policy-makers had sought. . . .

There was a time, however, when it was universally recognised that monetary policies of this kind would only make matters worse, but that was a very long time ago. Perhaps we should go back and see what economists used to say about such things before we go even farther in this direction, whose continuation will make it ever more difficult to extract ourselves from the abyss of our own creation we now find ourselves in.

All part of economic resurrection. It may cost more to get your hands on money going forward, but it is also more likely that the higher cost of borrowing will help channel our savings into more productive projects.

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4 Responses to Rates up

  1. JJF

    Rates have to go up here as well – a few percent at least!!!!!

  2. max

    Stronger USD. Have a look at the weakness of the Yen. This must be occupying the minds of the Chinese. Another devaluation in the Yuan seems likely. Trump will punish the Chinese but seems uninterested in the way the Japanese are deliberately weakening their currency.

  3. John Comnenus

    Wow,

    I was listening to Sky News this morning and Brook Coorte or whatever her name is who is the ‘business’ side of the morning news tag team told us that noone was expecting this surprise rate rise. She said it was due to Trump’s stimulus package.

    Mmmm. The market has been going through the roof because everyone is expecting a boom that will come from halving tax rates and making it easy and cheap to repatriate trillions of dollars and offering infrastructure tax credits. Whilst this is stimulatory, none of it is Government spending – it is the opposite, Government no longer collecting. All in all the market is expecting a boom and noone thought interest rates might rise. Who employs these people who cant see the obvious?

    Our rates will probably rise dramatically to try and attract capital that will otherwise stay in or be invested in the USA.

  4. Iampeter

    This will burst the re-inflated bubbles since 2008. This obviously needs to happen so the long overdue market corrections can actually start taking shape but I wonder how the Trump administration would react.

    Given the actions of the President elect to date around Carrier, I wonder if American leftists will not finally get there wish under Trump with him decisively moving toward outirght nationalization when the collapse happens.

    Sadly we live in cery interesting times.

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