Home › Forums › Financial Markets/Economics › interest rates in the USA v other advanced economies
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JPJones.
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December 17, 2018 at 11:09 AM #22644December 17, 2018 at 12:48 PM #811320
FlyerInHi
GuestI believe the higher rates in USA is because of our ballooning debt.
I mean, if we can’t cut deficit spending during good times, how will wil do so during the downturns.I believe California will be affected by the deleveraging campaign and currency comtrols in China.
December 17, 2018 at 3:10 PM #811321pencilneck
ParticipantI ponder this once in a while. Or a variation of it.
Traditional monetary theory holds that lower interest rates juice the economy by making borrowing easier. Higher interest rates subdue borrowing and have a dampening effect on the economy.
However, this only works perfectly in closed systems. In global systems some investors can game this by borrowing low in one semi-closed economy and invest in a higher rate area (so-called “carry trades”). If enough money flows to the areas with higher rates, traditional monetary theory will be turned on its head.
December 18, 2018 at 11:05 AM #811324evolusd
ParticipantMy clients ask about my rate expectations often. I’ve always pointed to other developed countries as an anchor for our rates. However, if we don’t get our deficit under control, the spread could widen due to perceived increased risk.
December 18, 2018 at 12:05 PM #811326GuestThe Fed is expected to raise rates yet again.
December 18, 2018 at 1:46 PM #811327The-Shoveler
ParticipantIf the Fed is truly data driven they won’t IMO.
More and more analyst are saying they should not.
As long as the debt is in your own currency the National debt is not as big a deal as lot of people make it out to be IMO.
December 18, 2018 at 2:25 PM #811328spdrun
ParticipantI say go for it. Housing bubble needs to pop. Bonus points if the privacy-robbing tech industry falls alongside it.
A recession can be a good thing. At the end of the day, recessions are the only times when carbon emissions have gone down and income inequality has fallen.
If a recession could swing the US far to the left nationally (public health insurance, more public transport spending, more restrictions on employers’ working hours/time off) this would also be wonderful.
The US elected a chaos president — the backlash against him should be spectacular if the economy dumps.
December 18, 2018 at 8:38 PM #811336henrysd
ParticipantMarket priced in 70% chance of interest rate hike tomorrow even with many call for no-hike, so Fed might have to preserve it credibility with go-ahead hike tomorrow. 1 and 3 month treasury bills already baked in the hike into rates. I think they will issue a reduced guidance for 2019 and 2020. Current guidance is 3 hikes in 2019 and 1 in 2020 and new guidance is likely to go down to 1-2 in 2019. I think there is a chance the recession can be pushed back further by a few more years if one hike tomorrow then pause for 2 years without changing.
My take is those people who expect a housing market crash will probably be disappointed for the next a few years. Not all recessions cause housing downturn. A new recession will prompt Fed to reduce rate to 0 again or even to negative territory and a new round of QE will push 10 year treasury rate down below 1%.
December 19, 2018 at 12:15 AM #811338GuestNot expecting a Great Recession housing crash but a cyclical housing downturn.
I was watching Ian Bremmer and he said that if China convincingly wins the AI race, it will be the end of western liberal democracy. A black swan event in the tech sector would crash housing in California. Something to be mindful of in the next couple decades.
December 19, 2018 at 11:53 AM #811344gzz
ParticipantFlyer, why do you think a downturn is more likely than another bubble?
We still have a growing population and economy with extremely low new construction. Tech is the world’s most important industry, will continue to gobble up a larger share of world GDP, and its immovable center is the bay area.
The amount of wealth there is so huge it is crazy prices aren’t even higher. So many people worth $50+ million with only 5% of their net worth or less in real estate, when the American norm and tradition is more like 20 to 50%.
Even at their current high prices, the Bay Area isn’t that expensive compared to Manhattan, London, Dubai, Hong Kong, etc. And incomes are higher when you consider the value of stock options.
Related point: San Diego prices have gone up less on a percentage basis not just than SF/LA, but also less than cities like Denver, Austin, Seattle, Portland, Miami, and DC.
While we still aren’t cheap, there is no longer much of a premium in San Diego compared to other tier 2 cities.
December 19, 2018 at 11:57 AM #811345ParticipantFed raises short term rates again…. long term rates don’t change, still around 10-month lows.
We are talking about recession risk. Do the NY/DC elites on the Fed hate Trump so much they’ll try to force a recession? I am not that cynical, but can’t rule it out entirely.
December 19, 2018 at 12:00 PM #811346ParticipantWell that should just about kill it (the expansion).
IMO anyway.December 19, 2018 at 12:40 PM #811348Guest[quote=gzz]Flyer, why do you think a downturn is more likely than another bubble?
[/quote]Yes, I stick to my recession 2020 prediction. Late 2020-2021. Central banks are rolling back easy money. Slower growth in China is not because of the trade war (trade has continued to grow ahead of the holidays) but because of monetary policy. The trade war will begin to affect growth here and China if no deal is made in 90 days
December 19, 2018 at 3:09 PM #811349Participant“While this certainly could continue to be the case, at some point I think people collecting 0.25, 1%, etc a year in other countries will decide instead to move their cash here and buy US Bonds. That will lead to… lower mortgage rates”
Looks like gzz was right (well at least for the moment).
Long live King dollar!! LOL
Oh well should keep inflation down.
December 19, 2018 at 10:13 PM #811352GuestYes, the strong dollar and its status as a reserve currency is a public good to the world.
But that means we will have large trade deficits well into the future.That’s why China has Belt and Road. They’d rather park their savings in infrastructure project that gain them influence and new markets than US bonds. The return on Belt and Road is not great but it helps absorb excess capacity and improves the world.
Since the 1990s the Mexican peso lost 1/2 its value to the USD. With USMCA, Mexico will be integrated more into the US economy. That’s why you see lots of Chinese and Korean investments into Mexico.
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