Interest Rates - Seriious thread

[Tony]

I have a couple hundred grand in a money market fund. Why is none of your business, but it does not make shit.

But I have a question. Why are interest rates not always 0-1% all the time? What advantage is there for the US, or the world as a whole to have interest rates anything other than close to 0%? I always see these guys on CNBC and Peter Schiff pushing to raise interest rates, but what is the advantage of having interest rates at say 8% versus close to 1%?

I get there needs to be balance in investments, but rates have been near 0% for 8 years and the economy has not collapsed, so not sure why there is a push by some to raise them by a few basis points.

[gauchojake]

[anonamoose]

[ToasterOven]

[Sloppy Joe]

[anonamoose]

[MumblesBadly]

I have a couple hundred grand in a money market fund. Why is none of your business, but it does not make shit.

But I have a question. Why are interest rates not always 0-1% all the time? What advantage is there for the US, or the world as a whole to have interest rates anything other than close to 0%? I always see these guys on CNBC and Peter Schiff pushing to raise interest rates, but what is the advantage of having interest rates at say 8% versus close to 1%?

I get there needs to be balance in investments, but rates have been near 0% for 8 years and the economy has not collapsed, so not sure why there is a push by some to raise them by a few basis points.

This article is a few months old, but the reasoning still applies:
http://www.bloomberg.com/news/articl...-yellen-speech

(Federal Reserve Chair) Yellen expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow. While the labor market is nearing full strength, “we are not there yet,” she said Friday in a speech in Providence, Rhode Island.

Delaying first rate increase until employment and inflation return to the Fed’s objectives “would risk overheating the economy,” Yellen said.

P.S. At least holding it in a money market fund was better than holding it in gold. (***Zing!!!***)

[GrenadaRoger]

I have a couple hundred grand in a money market fund. Why is none of your business, but it does not make shit.

But I have a question. Why are interest rates not always 0-1% all the time? What advantage is there for the US, or the world as a whole to have interest rates anything other than close to 0%? I always see these guys on CNBC and Peter Schiff pushing to raise interest rates, but what is the advantage of having interest rates at say 8% versus close to 1%?

advantage of 8% is less risk of inflation and boom/bust business cycles caused by cheap financing (low interest rates)...the disadvantage is unemployment and political upheaval

[Daly]

I can't help you with improving your yield.

I don't have the time to walk you through the importance of interest rates, but can and will in the next few days of this is a serious question.

Only short term advice I can give at this point is if you have that much liquid cash earning < 1% you should be spreading it around to multiple banks so you get FDIC insurance up to $100K. only reason to have that much cash in what is effectively a non interest bearing account is for the safety of it.

[Sheesfaced]

I can't help you with improving your yield.

I don't have the time to walk you through the importance of interest rates, but can and will in the next few days of this is a serious question.

Only short term advice I can give at this point is if you have that much liquid cash earning < 1% you should be spreading it around to multiple banks so you get FDIC insurance up to $100K. only reason to have that much cash in what is effectively a non interest bearing account is for the safety of it.

Not that it fucking matters because no chance in hell Bottomset has 200K sitting in a bank account, and if he does with only a "north of 250k" net worth then even more LOL what a horribly conservative investment strategy, but the FDIC limit was permanently increased from 100k to 250k several years ago. Just in case someone with money like Druff or Jewdonk is reading this thread.

[MumblesBadly]

I can't help you with improving your yield.

I don't have the time to walk you through the importance of interest rates, but can and will in the next few days of this is a serious question.

Only short term advice I can give at this point is if you have that much liquid cash earning < 1% you should be spreading it around to multiple banks so you get FDIC insurance up to $100K. only reason to have that much cash in what is effectively a non interest bearing account is for the safety of it.

Not that it fucking matters because no chance in hell Bottomset has 200K sitting in a bank account, and if he does with only a "north of 250k" net worth then even more LOL what a horribly conservative investment strategy, but the FDIC limit was permanently increased from 100k to 250k several years ago. Just in case someone with money like Druff or Jewdonk is reading this thread.

There are ways to have more than $250k insured at one bank, but some special accounts and/or trusts would need to be set up. Here's a handy guide:
https://www.fdic.gov/deposit/deposit...s-english.html

[MumblesBadly]

I have a couple hundred grand in a money market fund. Why is none of your business, but it does not make shit.

But I have a question. Why are interest rates not always 0-1% all the time? What advantage is there for the US, or the world as a whole to have interest rates anything other than close to 0%? I always see these guys on CNBC and Peter Schiff pushing to raise interest rates, but what is the advantage of having interest rates at say 8% versus close to 1%?

I get there needs to be balance in investments, but rates have been near 0% for 8 years and the economy has not collapsed, so not sure why there is a push by some to raise them by a few basis points.

Tony,

When the Fed wants to slow or lower inflation, it takes action to raise the cost of borrowing by banks, which in turn usually raises interest rates for borrowers. These higher borrowing costs will usually slow the economy if the increase in nominal interest rates in higher than the expected change in inflation rates. The rare exception is when borrowers, on average, believe that the expected returns on their investments are growing faster even when adjusted for inflation, and those periods are so rare that most of the action is due to changes in expected inflation.

So, why have been there been periods of much higher interest rates? Primarily because borrowers expected much higher inflation rates. Historically, inflation-adjusted short term risk-free interest rates have been about 0.5% based on historical analysis of Treasury bill rates and inflation. Which means that Treasury bill rates lower than 0.5% usually means that the Federal Reserve is ndirectly subsidizes bank profits in order to shore up the financial system.

In fact, Japan's central bank has been doing this for about two decades given how badly its banks were hurt by the late 1980's collapse in real estate prices, the cross-ownership of Japanese banks, the ridiculous level of crony lending to Japanese industries, the unwillingness of Japan's government to force Japanese banks to recognize the losses on their books, nor allow foreign investors to inject new capital into the financial system in exchange for sustaintial voting control of any of Japan's major banks.

And while that last paragraph seems like a digression, the US government did one particular thing in reaction to the 2008-2009 financial crisis similar to the Japanese that many economists believe amounted to a Full Tilt-style management of the crisis: It allowed the banks holding crap mortgages and mortgage-backed securities to not reflect their lower (and often worthless) value on their books.

Since then, the major banks have slowly worked a lot of those junk assets off of their books, so the need to shore up those banks with an indirect interest cost subsidy has waned. And because the Yellin and the other Fed Board members probably believe that the US banking system is finally out of the extreme danger that followed from the 2008-2009 financial crisis, it feels that banks should expect that indirect subsidy to be cut back starting later this year.

[simply1]

I have a couple hundred grand in a money market fund. Why is none of your business, but it does not make shit.

But I have a question. Why are interest rates not always 0-1% all the time? What advantage is there for the US, or the world as a whole to have interest rates anything other than close to 0%? I always see these guys on CNBC and Peter Schiff pushing to raise interest rates, but what is the advantage of having interest rates at say 8% versus close to 1%?

I get there needs to be balance in investments, but rates have been near 0% for 8 years and the economy has not collapsed, so not sure why there is a push by some to raise them by a few basis points.

Buy a nicer house or increase the value of the one you have with worthwhile renos.

[MumblesBadly]

I have a couple hundred grand in a money market fund. Why is none of your business, but it does not make shit.

But I have a question. Why are interest rates not always 0-1% all the time? What advantage is there for the US, or the world as a whole to have interest rates anything other than close to 0%? I always see these guys on CNBC and Peter Schiff pushing to raise interest rates, but what is the advantage of having interest rates at say 8% versus close to 1%?

I get there needs to be balance in investments, but rates have been near 0% for 8 years and the economy has not collapsed, so not sure why there is a push by some to raise them by a few basis points.

Buy a nicer house or increase the value of the one you have with worthwhile renos.

What about funding stakes in the PFA freerolls? Because the freeroll doesnt cost anything to enter, he could make a killer return on his money!