Krugman: interest rates would return to virtually nothing once the inflation fight is over

[carlsbadworker]

I think this was gzz’s point a while ago. What worries me that it does not factor in the new “cold-war” which means globalization as we knew it has ended.

Krugman noted that rates drifted towards zero over the course of the three decades leading up to the pandemic, but that didn’t result in serious inflation.

He suggested the “natural rate of interest” may have dropped due to lower investment demand, reflecting tepid growth in the US workforce and a dearth of innovations since the 1990s. Those trends potentially weighed on investment in homes, appliances, office space, and new equipment, he said.

Meanwhile, Krugman argued that inflation only spiked during the pandemic because government aid shored up consumers’ purchasing power. Meanwhile, lockdowns and supply-chain disruptions curtailed the economy’s productive capacity, pushing up prices.

[The-Shoveler]

IMO FED moving way too fast, once this starts going south it’s going to snowball in a hurry.

Anyway just my opinion

[JPJones]

[quote=The-Shoveler]IMO FED moving way too fast, once this starts going south it’s going to snowball in a hurry.

Anyway just my opinion[/quote]

With you here. Unemployment in September somehow dropped again from 3.7% to 3.5%, which means we’ll probably get another .75% rate increase in November. It might just be my inexperience talking, but it feels like our bike has the speed wobbles and we’re about to eat shit hard.

[an]

Wonder when the inflation fight will be over. It’s transitory, right?

[svelte]

[quote=an]Wonder when the inflation fight will be over. It’s transitory, right?[/quote]

You’re implying it’ll be a while and I think you are right.

Interest rates may indeed go low again but I bet it will take a few years. Just my opinion.

This sure feels like a replay of the 1970s even with OPEC ratcheting down production. History doesn’t repeat itself but it rhymes.

[an]

[quote=svelte][quote=an]Wonder when the inflation fight will be over. It’s transitory, right?[/quote]

You’re implying it’ll be a while and I think you are right.

Interest rates may indeed go low again but I bet it will take a few years. Just my opinion.

This sure feels like a replay of the 1970s even with OPEC ratcheting down production. History doesn’t repeat itself but it rhymes.[/quote]
That’s exactly what I’m thinking. Nominal house prices went berserk in the 70s. Will we see the same this time?

Unless we see a recession worse than 2008 and rates crater back to an all-time low. If that happens, I hope you have cash on hand and a job to benefit from cratering price and cratering rate.

[gzz]

A friend sent me the same article. I agree with Krugman for the most part, but he doesn’t even get into all the reasons that inflation and interest rates are on a downward trend.

He misses inequality: more and more wealth is going to wealthy people who largely save it, increasing the supply and decreasing demand for loanable funds.

He’s a smart guy, he probably knows this and may have written about it elsewhere.

He may also be too partisan and liberal to admit that nearly all of the GOP and a big slice of the Democrats are firmly anti-inflation, and even more so the elites of the parties. We only got inflation now because of Covid/Ukraine, both unexpected and unprecedented events.

While I am personally pro-inflation, this is a very unpopular view and I know it will never prevail among the powerful in the US, EU, Japan, etc.

[phaster]

[quote=carlsbadworker]I think this was gzz’s point a while ago. What worries me that it does not factor in the new “cold-war” which means globalization as we knew it has ended.

https://www.nytimes.com/2022/10/04/opinion/interest-rates-inflation.html

Krugman noted that rates drifted towards zero over the course of the three decades leading up to the pandemic, but that didn’t result in serious inflation.

He suggested the “natural rate of interest” may have dropped due to lower investment demand, reflecting tepid growth in the US workforce and a dearth of innovations since the 1990s. Those trends potentially weighed on investment in homes, appliances, office space, and new equipment, he said.

Meanwhile, Krugman argued that inflation only spiked during the pandemic because government aid shored up consumers’ purchasing power. Meanwhile, lockdowns and supply-chain disruptions curtailed the economy’s productive capacity, pushing up prices.[/quote]

Krugman is an idiot because he does not consider the role of demographics,… basically because of the population curve (i.e. the number of baby-boomers, the number of gen-x, the number of millennials, etc.) it is possible to somewhat predict trends such as interest rates

said another way looking at global demographics, we can expect much higher interest rates not on here in the USA, but also around the world (which is going to cause lots of interesting economic responses)

FWIW a good tome on the topic of demographics and how it will affect an economy is, “the end of the world is just the beginning” by Peter Zeihan

https://books.apple.com/us/audiobook/the-end-of-the-world-is-just-the-beginning/id1590602504

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