Sunday, June 10, 2018

A Lack of a Faith and Future in America is What Keeps Interest Rates Low

Oh, that and the millennials are already up to their eyeballs in student loans, so don't expect them to be borrowing money to buy a sizeable house or start a business.  Besides, remember, our K-college teachers and professors said businesses were evil.


Tucanae Services said...

The biggest driver for keeping rates low is the government itself. Imagine what would happen if TBill rates were in the 10-12% range. The government would probably be in default since they could not afford rate even with all the money printing available.

Bye the bye, $1USD buys $2000000 VZ Bolivars. That is NOT a misprint.

FSK said...

Nope, interest rates are set by the Federal Reserve. It makes no difference what people think.

The short-term overnight rate (Fed Funds Rate) is directly set by the Federal Reserve.

The long-term rates are indirectly set by the Federal Reserve, based on what people predict the Federal Reserve will do in the future.

For example, if the 1 year Treasury is 1%, that means that traders expect the Fed Funds Rate to average 1% over the next year. Otherwise, there would be an arbitrage opportunity. Borrow at the Fed Funds Rate and buy Treasuries. Or, short sell Treasuries and lend out the proceeds at the Fed Funds Rate.

Rates for private debt are usually Treasury plus a couple percent, because banks can borrow at the Fed Funds/Treasury Rate to finance the transaction.