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Why do people think the Fed has this magic wand to set all interest rates? They don't. Nearly all interest rates are set by bidders when they buy government, private and mortgage bonds at auction.
Interest rates are at near zero because there's too much cash floating around, mostly at the top, corporate cash hoarding and with institutions. There's not a lot of confidence in growth so money isn't being invested in new factories, capital projects or stocks. Instead the cash chases zero risk treasuries. Until we find a way to get the excess cash out of the system (wealth tax) or divert the cash out of bonds into stocks and capital investment (government stimulus projects), interest rates are doomed to stay low.
... and it all disproves the idea that too much cash is inflationary! Cash sitting in savings or stored in bonds isn't inflationary because it isn't being spent.
The Fed had quite a bit to do with bond rates when it started buying US Treasury bonds directly without going though the banking system. This is known as "monetizing the national debt," and at one time was the economic end game horror story.
Inflation all depends on what you measure. Consumer inflation is flat, because consumers don't have any money and demand is not increasing. Asset inflation is running between 10% and 20% a year because all that big money has to go somewhere.
Banks like treasuries because they can use those as security to borrow more money from the Fed. A risk-free 1% return on a trillion dollars is still pretty big money, particularly when most of it is borrowed and your actual return on your investment is 10%.
Do you have to numbers to give us? How much of the assets in the US are foreign owned and how much is US owned?
I thought Jerry Speyer owned Rockefeller Center along with a group of people not "the Japanese"
That's hard to tease out, but our trade deficit over the last 30 years totals about $20 trillion, and the estimated total assets of the US are $188 trillion. Assuming foreign investors haven't been totally stupid, they have earned something on their investments over the years, so currently about 25% of the US is owned by foreign interests.
Rockefeller Center has been sold several times since the '80s. I have no idea who owns it now.
That's hard to tease out, but our trade deficit over the last 30 years totals about $20 trillion, and the estimated total assets of the US are $188 trillion. Assuming foreign investors haven't been totally stupid, they have earned something on their investments over the years, so currently about 25% of the US is owned by foreign interests.
Well are you going to back out 6-7 trillion is foreign owned Us govt debt? How about foreign owned US corporate debt? How about simply foreign owned USD?
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Rockefeller Center has been sold several times since the '80s. I have no idea who owns it now.
Well the Japanese don't own it, they walked away from it losing money so that's a way to get some of those dollars back. Seems you are being an alarmist here without much data to back your stance
The Fed had quite a bit to do with bond rates when it started buying US Treasury bonds directly without going though the banking system. This is known as "monetizing the national debt," and at one time was the economic end game horror story.
Inflation all depends on what you measure. Consumer inflation is flat, because consumers don't have any money and demand is not increasing. Asset inflation is running between 10% and 20% a year because all that big money has to go somewhere.
Banks like treasuries because they can use those as security to borrow more money from the Fed. A risk-free 1% return on a trillion dollars is still pretty big money, particularly when most of it is borrowed and your actual return on your investment is 10%.
Of course the Feds sets the overnight rate. Prime follows.
I don't believe that the Fed typically buys Treasuries direct. Most all they own was bought from the banks during QE using money they conjured.
Contrary to what Gross says, a vast amount of debt at very low interest rates is owned by all sorts of agencies and institutions as a safe and predictable store of value.
Well are you going to back out 6-7 trillion is foreign owned Us govt debt? How about foreign owned US corporate debt? How about simply foreign owned USD?
Well the Japanese don't own it, they walked away from it losing money so that's a way to get some of those dollars back. Seems you are being an alarmist here without much data to back your stance
As someone else noted, dollar flow is a black box. Dollars out, dollars in. 6 or 7 trillion is much less than the interest earned on our trade deficit. I have 5% government bonds purchased in 1989 that are currently worth 3x their purchase price. Once you go into debt, you have to service that debt somehow. That 6-7 trillion actually represents about 2 trillion of our trade debt.
You may call me an alarmist, but you have absolutely no data to support ignoring the system. Do foreigners own 20% of US assets? Do they own 30%? Nobody knows, but we know that foreign interests have placed huge dollar denominated investments in the US, which means they own it. Another decade will see another $5.5 trillion of foreign purchases, plus profits and interest, and thanks to consumer poverty our trade deficit has dropped 25%.
As someone else noted, dollar flow is a black box. Dollars out, dollars in. 6 or 7 trillion is much less than the interest earned on our trade deficit. I have 5% government bonds purchased in 1989 that are currently worth 3x their purchase price. Once you go into debt, you have to service that debt somehow. That 6-7 trillion actually represents about 2 trillion of our trade debt.
If your govt bonds have tripled in value you should understamd when they mature the govt is only going to pay you 1000.00 per bond so that's not relevant
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You may call me an alarmist, but you have absolutely no data to support ignoring the system. Do foreigners own 20% of US assets? Do they own 30%? Nobody knows, but we know that foreign interests have placed huge dollar denominated investments in the US, which means they own it. Another decade will see another $5.5 trillion of foreign purchases, plus profits and interest, and thanks to consumer poverty our trade deficit has dropped 25%.
Give me some data that supports your assertions. Without it you are just ringing a bell. You don't know if foreign owned interest is 5% or 50%. You mentioned Rockefeller center and it's not even owned by the "Japanese" have you also compiled data of how much in total foreign assets are owned by US interest? You are just being an alarmist
If your govt bonds have tripled in value you should understamd when they mature the govt is only going to pay you 1000.00 per bond so that's not relevant
Give me some data that supports your assertions. Without it you are just ringing a bell. You don't know if foreign owned interest is 5% or 50%. You mentioned Rockefeller center and it's not even owned by the "Japanese" have you also compiled data of how much in total foreign assets are owned by US interest? You are just being an alarmist
I hope they do better than that, since they are $15,000 bonds that mature in 2019.
As for foreign interests, my WAG of 25% foreign ownership of US assets was very conservative. I think it's probably quite a bit higher than that. I do know that in the last recession, foreign interests were aggressively bargain hunting for US assets, including stocks, businesses and real estate. Does Shanghui ring a bell? How about Smithfield?
The Fed had quite a bit to do with bond rates when it started buying US Treasury bonds directly without going though the banking system.
QE ended in 2014. Gov bond rates are lower today than then -- today's rates are 100% free market, at least in the US. It's all non-government surplus cash bidding up bond prices and driving down rates. Too much cash in the world looking for a place to park.
Is all this outrage at the Fed and interest rates concern for America or just anger that fixed-income investments aren't paying fearful investors what they think they deserve?
On another note, judging from the last couple of pages of posts on another thread on a similar subject I'm thinking at least one of last night's posters will be waking up this morning with a massive handover.
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