The Fed should not vary interest rates from normal levels, says author Nassim Taleb

[TheDawn]

He's aged.

 

[Scataphagos]

Base rates are going to 4%+ soon, so i think he was saying after that happens that they should never cut them back to below 2%.

I think we all know they will be desperate to do that the first chance they get.

Back before Volker's time....

Corp. Bonds yield ~9-10%
30 yr Treasuries, ~8%
Money Markets ~6%
Savings Accounts ~5%

The markets and the economy got along just fine. Then... some government and banking guys got the idea that they could "get something for free" by lowering rates and deficit spending. And now, here we are... banana republic in the making.

 

[Businessman]

Back before Volker's time....

Corp. Bonds yield ~9-10%
30 yr Treasuries, ~8%
Money Markets ~6%
Savings Accounts ~5%

Im not that old to remember before Volker, but i remember day trading with IB in 2006 and thinking the overnight interest they were paying into my account was going to cover almost all the commissions i was paying to them.

 

[Scataphagos]

Im not that old to remember before Volker, but i remember day trading with IB in 2006 and thinking the overnight interest they were paying into my account was going to cover almost all the commissions i was paying to them.

I remember when passbook savings accounts were @ 5.25% and we thought that was a poor yield. Many people today would give their left nut for such a yield now...

 

[MKTrader]

Base rates are going to 4%+ soon, so i think he was saying after that happens that they should never cut them back to below 2%.

I think we all know they will be desperate to do that the first chance they get.

Remember, we have a huge debt to service, and low interest rates make that more manageable. As far as what rates "should" be, well the Fed "should" have nothing to do with that, but that's a different discussion.

 

[Scataphagos]

Remember, we have a huge debt to service, and low interest rates make that more manageable. As far as what rates "should" be, well the Fed "should" have nothing to do with that, but that's a different discussion.

Yeah, but the Fed has LOTS to do with it.

 

[zghorner]

Base rates are going to 4%+ soon, so i think he was saying after that happens that they should never cut them back to below 2%.

I think we all know they will be desperate to do that the first chance they get.

yes exactly, the dude is basically saying zero interest rates create bubbles...so don't do that again lol. seems like a fair statement to me.

 

[Scataphagos]

yes exactly, the dude is basically saying zero interest rates create bubbles...so don't do that again lol. seems like a fair statement to me.

Yeah, well... too late. The "horse is out of the barn"... ZIRP allowed $30T debt build-up and there is no "reeling it in". Likely massive default or hyperinflation only options.

 

[M.W.]

That's a huge misperception. Ever heard the term "inflating yourself out of debt"? With higher inflation the same 1000 today than a year ago is worth much less, so paying the past 1000 in debt back with the inflated 1000 today is much easier, not more difficult.

Remember, we have a huge debt to service, and low interest rates make that more manageable. As far as what rates "should" be, well the Fed "should" have nothing to do with that, but that's a different discussion.

 

[MKTrader]

That's a huge misperception. Ever heard the term "inflating yourself out of debt"? With higher inflation the same 1000 today than a year ago is worth much less, so paying the past 1000 in debt back with the inflated 1000 today is much easier, not more difficult.

That's a huge reading comprehension error. Cetiris paribus, higher interest rates make debt payments larger. Inflation is a different issue. The misperception and goal post shifting belong 100% to you.