People stop buying stuff they don't need and don't pay high prices if there are other options ... cut back on the demand. That's what raising interest rates is suppose to do ... make people stop buying stuff, especially the stuff they need to finance.
Investing Strategies. What is your move?
- Thread starter PimTac
- Start date
Are you trying to get me banned? The terms "spending money" and "drunken sailor" come to mind. Not to denigrate sailors at all. At least they spend their own money.
Yes stop all hand outs and cheesy debt forgiveness.
Then support all ways and means of getting essential items from source, production, etc to end user with the least amount of interference - ie support the supply side, don't restrict it.
Nothing. The Fed has two tools - rates to control economic activity and buying/selling treasuries to control the money supply. The problem with rate hikes so far is they are not slowing down demand for goods/services and the fed has been selling treasuries to reduce its balance sheet. At that point, there isn't anything left to do other than continue with rate hikes. It is a blunt tool however and if you leave rates too high for too long it often leads to recession. On the other hand, if you let inflation remain too high for too long that also leads to recession and sometimes depression. Both can cause a recession but letting inflation remain high has a greater chance of also causing depression. Thus, rate hikes are the lesser of two evils.
Great in theory but with congressional dysfunction these days not holding my breath.....
From an economics standpoint:
Governments use wage and price controls to fight inflation; they are poor tools at best. Remember, we are a laissez faire market economy. Rate hikes are the Fed's main tool.
Additionally, we operate in a world economy, so while the US is the biggest economy (and influencer) we don't run the show.
The bottom line is, individual governments have relatively few ways to stop inflation in a world market. The key issues include geo political (Russia Ukraine China Taiwan), supply chains, etc. Labor markets has been decimated by health issues, aging workforce and immagration policies. Since the 1980's outsourcing has lowered prices but sent influence overseas. Bringing things like semiconductor chip production (and technology!) on shore will go a long way going forward.
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Unfortunately the folks doing all the spending today won’t be around in 20 years to see the consequences.
Some say Credit Suisse is close to going under and they might be the first domino to fall.
Lots of international banks are intertwined in the web of crazy debt / derivatives / leverage / exposure, etc….
https://www.thetradenews.com/credit-suisse-reports-443-decline-in-profits-year-on-year/
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Which is amazing. One of the things the Fed changed after 2008 was to pay a minimum interest rate to banks to hold reserve funds at the Fed. This was to incentivize banks to NOT lend the money because they could make a guaranteed return at the Fed. The idea was to encourage banks to hold more in reserve to avoid future liquidity crunches. Prior to 2008 banks had relatively little reserves because they wanted to loan that money. Now, banks are sitting on huge reserves on the order of $4.5T. To think banks can still go under even with these reserves shows how dysfunctional the banking system really is at the moment.
https://fred.stlouisfed.org/series/IORB
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The prime interest rate today is 7.75%. I suspect any bank or lending agency that made 30 year mortgage loans a couple of years ago at 3% must be losing money hand over fist. Even if they aren't holding mortgages, many other loans made at the same time aren't currently profitable. With interest rates so high, the volume of new loans is reduced, also impacting bank profits.
While I don't think there will be a repeat of the S&L crisis that happened in the 80s, this might be a good time to get rid of any bank stocks in your portfolio.
While I don't think there will be a repeat of the S&L crisis that happened in the 80s, this might be a good time to get rid of any bank stocks in your portfolio.
Mortgages are tied to the 10 year T bill and the cost of money was much less a few years ago. As long as the bank loaned the money for more than it cost them at the time it’s profitable. That’s the whole idea behind a “rate lock”. The bank “buys” the money at the current rate on the day you lock your rate. Current rates have no impact on the profitability of loans originated years ago.
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This is not meant to be political but it puts perspective on the nation’s financial status. This of course affects the markets as well.
“In the next 10 years, Americans will pay $10.5 trillion just on the interest on our debt. Now put that in perspective, from 1940 to today, America's only paid $9 trillion so the next 10 years, we'll pay more than we paid in the last 80 [years]," McCarthy said at a news conference.
You can envision how this will play out but it will affect your investments and your wallet.
https://justthenews.com/government/...ts-debt-over-10-years-one-greatest-threats-us
“In the next 10 years, Americans will pay $10.5 trillion just on the interest on our debt. Now put that in perspective, from 1940 to today, America's only paid $9 trillion so the next 10 years, we'll pay more than we paid in the last 80 [years]," McCarthy said at a news conference.
You can envision how this will play out but it will affect your investments and your wallet.
https://justthenews.com/government/...ts-debt-over-10-years-one-greatest-threats-us
Yes, you say it best and I am getting too involved trying to take it further *LOL* many arent aware of the 10 year T-year bill rate. When the Fed raises interest rates it doesnt directly raise mortgage rates.
Here is some reading for others, someone asked about banks getting in trouble when rates go up on mortgages ...
Fannie Mae and Freddy Mac buy mortgages from banks as well. A bank in general will make as an example 100% profit on the money they lend you over the 30 year mortgage.
So they can sell that mortgage tomorrow to the two mentioned above at a lower profit but significant amount of money and be done with that mortgage, Fannie Mae and Freddy Mac will buy it and have someone else service it (another lender or institution) also investors buy mortgage securities as well best described in the second link...
https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp
"In a typical loan arrangement, you borrow a sum of money from a bank or mortgage company, and then you pay that lender back over time. Most home mortgages, however, have terms of 15 or 30 years. That's a long time for the lender to have its money tied up, so most lenders don't actually hold onto their mortgages. Instead, they sell them to outside investors on what's called the secondary mortgage market. The lender gets its money back, plus a little profit, and it can turn around and lend that money to someone else. The investor gets the right to collect the mortgage payments over the next 15 to 30 years."
"Lenders can make a lot of money by issuing mortgages. For example, a 30-year mortgage for $150,000 at 6 percent annual interest will generate a total of nearly $324,000 in payments over the life of the loan"
https://budgeting.thenest.com/mean-freddie-mac-owns-mortgage-27008.html
It's not that difficult. Inflation will can get worse with jacking rates as I have said before. Raising rates is not some kind of happy-happy thing just because you feel better about your FDIC savings or money market paying more.
Tighter goods supply. More expensive supplier loans. And yes and even worse gov debt.
Hysteresis coming soon. The back-fill blammo.
It's not a good cycle.
Things will get bad when the ripples of rate hikes arrive and liquidity drys up for lots of zombie companies.
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I feel like the calm before the storm and many not paying attention and preparing for a downturn.
People refuse the buyout and out the door they go. Lots of companies trimming the fat.
https://www.cnbc.com/2023/03/09/gm-buyouts-us-salaried-workers.html
https://www.dailyjobcuts.com/
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I feel like the calm before the storm and many not paying attention and preparing for a downturn.
People refuse the buyout and out the door they go. Lots of companies trimming the fat.
https://www.cnbc.com/2023/03/09/gm-buyouts-us-salaried-workers.html
https://www.dailyjobcuts.com/
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Most of them probably made some extra profits (and probably still are) when they jumped onto the inflation train and jacked-up prices more than they needed to so they could reap more profits due to greed. I highly doubt everyone just raised prices enough to maintain their per-inflation profit margins.
Of course! Ride the wave, baby! And it's not just big oil... Corporate profits...
GON
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Goldman Sachs is never in trouble. They are far to connected. Your 401k will be taken from you before Goldman Sachs has catastrophic troubles allowed to kill them.
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