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Old 06-06-2013, 10:47 AM   #21
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Originally Posted by HFWR

FWIW, the real return under your 1990 scenario would have been 2-3%...
And it's negative 1 or 2 now. From a personal perspective. If I'm making 57 times current rates, I'm not worried about the price of milk.
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Old 06-06-2013, 10:56 AM   #22
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And it's negative 1 or 2 now. From a personal perspective. If I'm making 57 times current rates, I'm not worried about the price of milk.
Inflation is around 2%, and the 10yr Treasury is slightly above 2%, so near zero real, arguments about how inflation is calculated not included...

As it pertains to me and FIRE, I refinanced my mortgage late last year to take advantage of the low rates, and I only keep a small chunk of my portfolio in "cash".
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Old 06-06-2013, 11:15 AM   #23
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Originally Posted by HFWR

Inflation is around 2%, and the 10yr Treasury is slightly above 2%, so near zero real, arguments about how inflation is calculated not included...

As it pertains to me and FIRE, I refinanced my mortgage late last year to take advantage of the low rates, and I only keep a small chunk of my portfolio in "cash".
I was comparing 1 year rates just to make a historical point. .14 today vs 6 to 8 in the nineties. But if we look at the average one year rate of about 3.5 and compare it to today at .14, that's still a big difference. Using my original example, it would take 25 million dollars to generate the same interest income today as 1 million would in average times. I've gotta think that can't be good for the economy.
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Old 06-06-2013, 11:45 AM   #24
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I know I'm just one person on fixed income and perhaps people on fixed income are a smaller part of the economy compared to the rest of the economy, but low interest rates are "costing" the government in 2 ways (in my case). It's preventing me from making a higher return on my savings and thus paying higher taxes. It's also going to cost the government next year when I apply for Obamacare and get a much larger tax credit because my income is lower compared to if I was getting a higher return on my fixed income investments. I just wonder how many other people are out there in a similar situation. It can't be an insignificant number.

Also, I would probably spend more money if my income was higher.
I suspect low interest rates help the government far more in keeping down borrowing costs than from taxes paid on interest income.
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Old 06-06-2013, 12:32 PM   #25
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I suspect low interest rates help the government far more in keeping down borrowing costs than from taxes paid on interest income.
The interest income received from the securities owned is turned over to the treasury. So, the higher the yield, the higher the income for the treasury. An increase in rates would logically reduce the value of the Feds treasury portfolio, but the Fed doesn't pay anything for the debt in the first place. It merely issues credits. The debt owed by us to us is irrelevant.
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Old 06-06-2013, 12:58 PM   #26
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The interest income received from the securities owned is turned over to the treasury. So, the higher the yield, the higher the income for the treasury. An increase in rates would logically reduce the value of the Feds treasury portfolio, but the Fed doesn't pay anything for the debt in the first place. It merely issues credits. The debt owed by us to us is irrelevant.
I'm not talking about the Fed here. I'm talking about the Federal Budget which has a pie wedge for interest it has to pay to service the Federal Deficit - interest paid to individuals/institutions that buy any new issues of US Govt debt. When interest rates go up, the Federal Deficit gets bigger because that "interest payments" pie wedge gets bigger.
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Old 06-06-2013, 01:00 PM   #27
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Originally Posted by HFWR View Post
Inflation is around 2%, and the 10yr Treasury is slightly above 2%, so near zero real, arguments about how inflation is calculated not included...

As it pertains to me and FIRE, I refinanced my mortgage late last year to take advantage of the low rates, and I only keep a small chunk of my portfolio in "cash".
The latest reading was 1.1%, so the 10yr Treasury is paying 1% real at the moment. I think it usually pays at least 2% real.
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Old 06-06-2013, 01:28 PM   #28
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I'm not talking about the Fed here. I'm talking about the Federal Budget which has a pie wedge for interest it has to pay to service the Federal Deficit - interest paid to individuals/institutions that buy any new issues of US Govt debt. When interest rates go up, the Federal Deficit gets bigger because that "interest payments" pie wedge gets bigger.
Ok. The article is about the Fed, though. And holding down debt service payments isn't one of the Feds stated goals.
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Old 06-06-2013, 02:47 PM   #29
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Ok. The article is about the Fed, though. And holding down debt service payments isn't one of the Feds stated goals.
I quoted and was responding specifically to Dallasguy who said that the Federal Government would get higher income taxes if interest rates were higher - a supposed benefit. And I pointed out that they would be paying a higher amount for servicing debt in that scenario, and so lower interest rates (for lower debt service costs) was more favorable for the Federal Government.
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