Quote:
Originally Posted by Tervuren
The interest rate on the bonds is driven by demand to hold those bonds. As demand goes up, the interest rate goes down.
......................
When people start saving instead of spending, a debt driven economy has a fit.
|
I guessing at straws here, but I'm thinking the interest rate is going to go up. It's been zero for too long and the fed is going to be slowly reeling it back up to a more 'normal' position without spooking the market. They were talking about getting off the juice for a while now and Yellen dared to raise it a tenth of a quarter percent without the market bum rushing the exit door all at once. Baby steps are needed.
Inflation has to go up in order to equalize stagnant wages versus skyrocketing housing prices, because the disparity of people in heavy debt from all the low-interest NINJA buying mansions is what helped create 2008 (besides primarily the massive ratings and packaging frauds which went unpunished). Housing is still moving up too fast, but a slowdown will create a terminal vacuum without other industries such as steel etc filling the void. Donnie got to bring 'em home and then make them work competitively on the open market in phase two. Immigrants and foreign investments saved our bacon last time but what if all those empty Seattle houses are PRC bombs waiting to going on the market at once.
People saving is a sign of less reliance on government, but the NYC central banks won't want to pay out interest to those pesky responsible savers so people will start investing savings elsewhere. The bankers are still going to get their traditional free slice in the trillions of US GDP either way, even through higher banking costs and higher interest rates when people slow spending and borrowing. In self-interest they will try not to kill their own golden goose like the times before.
What I don't understand is that despite the Baby Boomers retiring a needing medicine, personal saving is going up? Or just is spending going flat? This must mean boomers are self-sufficient and even when they pass the nouveau riche kids are still spendthrifting responsibly(or hoarding from a different perspective) their family funds and not blowing it on hookers and blow. With all the education debt and starbucks and new pickup trucks costing $60k and them all leveraged out the wazoo how could that be? That doesn't make sense to me but I'm not an economist and really not sure of the elements which make the big machine tick.
When spending goes down and banking interest goes up, I'm guessing people will demand access to more information to research purchases and start demanding more for their dollar with higher quality from manufacturers. Which is a good thing.