Thanks for the conversation. Schenker makes this point: "We've got $34 trillion in debt and over 17 in federal debt and $17 trillion in consumer debt. And you know some of that debt you need to refinance right you don't want high interest rates stuck high because that hurts the entire economy that massively increases debt service and can cause a further spiraling and that's a that's a bipartisan non-partisan issue right you don't want to waste government dollars on debt service if you don't have to and the way you can help prevent that from becoming a bigger systemic problem is making sure you get inflation down and you restore confidence in long-term inflation being at or around the 2% level."
1. I think his point that high interest rates hurt the entire economy is a bit misguided - high interest rates only hurt an actor if they're paying those higher interest rates but earning much lower interest rates. If interest rates are high across the board, then everyone is earning and paying higher interest rates so it functionally doesn't matter. That's how interest rates were so high in the 1970s and yet the 1970s had significantly greater real and nominal GDP growth than the lower rate eras of the 2000s and 2010s. If everyone is paying a high interest rate, everyone is earning a high interest rate. High debt service costs also mean high income from someone else servicing their debt.
2. He says the Fed needs to "restore confidence in long-term inflation being at or around the 2% target". From my read of the data all signs point to those expectations having been anchored for the entire post-Covid period. 5y5y forward inflation breakevens are at 2.36%, around the same range since early 2021, and Atlanta Fed business expectations of long term inflation sit at 2.8%.
Taken together I'm seeing a world where inflation has never really been seen as the main problem, and it's actually *raising* interest rates which increases the amount everyone is earning and paying, which creates the risk of producing an unchaining of inflation expectations.
Thank you for this "other side of the coin" observation. I am still thinking about it. What I see. CPI was rising 9% at its peak. What rate of interest could possibly have compensated regular people for that big increase in cost of living? Inflation has SLOWED, which is great but only after the Fed did four 75 bp rate hikes in a row. And overall prices are still 20% higher than they were pre-pandemic. Again, for a lot of regular people, that's a big cost.
Also thank you for helping to start a conversation on my substack, and on yours, on these important topics.
Thanks for the conversation. Schenker makes this point: "We've got $34 trillion in debt and over 17 in federal debt and $17 trillion in consumer debt. And you know some of that debt you need to refinance right you don't want high interest rates stuck high because that hurts the entire economy that massively increases debt service and can cause a further spiraling and that's a that's a bipartisan non-partisan issue right you don't want to waste government dollars on debt service if you don't have to and the way you can help prevent that from becoming a bigger systemic problem is making sure you get inflation down and you restore confidence in long-term inflation being at or around the 2% level."
1. I think his point that high interest rates hurt the entire economy is a bit misguided - high interest rates only hurt an actor if they're paying those higher interest rates but earning much lower interest rates. If interest rates are high across the board, then everyone is earning and paying higher interest rates so it functionally doesn't matter. That's how interest rates were so high in the 1970s and yet the 1970s had significantly greater real and nominal GDP growth than the lower rate eras of the 2000s and 2010s. If everyone is paying a high interest rate, everyone is earning a high interest rate. High debt service costs also mean high income from someone else servicing their debt.
2. He says the Fed needs to "restore confidence in long-term inflation being at or around the 2% target". From my read of the data all signs point to those expectations having been anchored for the entire post-Covid period. 5y5y forward inflation breakevens are at 2.36%, around the same range since early 2021, and Atlanta Fed business expectations of long term inflation sit at 2.8%.
Taken together I'm seeing a world where inflation has never really been seen as the main problem, and it's actually *raising* interest rates which increases the amount everyone is earning and paying, which creates the risk of producing an unchaining of inflation expectations.
Thank you for this "other side of the coin" observation. I am still thinking about it. What I see. CPI was rising 9% at its peak. What rate of interest could possibly have compensated regular people for that big increase in cost of living? Inflation has SLOWED, which is great but only after the Fed did four 75 bp rate hikes in a row. And overall prices are still 20% higher than they were pre-pandemic. Again, for a lot of regular people, that's a big cost.
Also thank you for helping to start a conversation on my substack, and on yours, on these important topics.
Really appreciate the response and find your video discussions invaluable. Thank you