Ironically the Vanguard group's branding - at least as far as I've met it - has been as the company who specifically don't have opinions about markets. I'm sure they have a large advisory group, but they're famous for the index funds.
I think they're obviously wrong. The long term interest rate is clearly trending to 0% [0] (and someone is lying about what "real" means, that interest rate wants me to believe my gold bar is getting bigger every year. I have a tape measure handy, it is not getting bigger in real terms [1]) and the US strategy is [see a crisis -> print some money], which is not a political environment that will tolerate borrowers getting a fair deal for any length of time. Something huge (ie, a financial crisis bigger than anything in the 1980 -> 2024 time period) will need to happen to buck the political zeitgeist.
> Something huge […] will need to happen to buck the political zeitgeist.
The only thing that can do the job is the government making budget surpluses every OK economic year in order to repay for the debt from the crisis.
But:
- it's unrealistic to do it by reducing spendings because it would tank the economy very badly.
- it's not very realistic to rise tax rates either because:
1. If you rise them on the laypeople, you tank the economy as well.
2. If you rise them on businesses, they move away from the US or suffer from foreign competition.
3. And given the plutocratic nature of the US democracy, there's no way I imagine the government raising taxes on the oligarchs.
Anyway, the most realistic option would be 2., but it would need to keep raising tariffs and trade barriers in order to overcome the mobility and the foreign competition effects. But it's already triggering a come back of protectionism at a global scale, which is also likely to tank the economy, so it's not entirely trivial to do (and it also hurts the interests of a significant fraction of the oligarchy).
Current interest rates are not high by historical standards. Zero interest rates were an abnormality that could not last indefinitely.
High interest rates will be tough on governments, private equity, and real estate. But employment is high and corporate profits are doing fine, so there's no need for a "stimulus".
It's also likely to cause additional layoffs, since companies are forced to refinance with higher interest rates, and will need to cut cost to continue to post positive wall street results. (At proper time): https://youtu.be/ovXaIFPy-ks?t=632
The “monetary policy” column of their “economic forecasts” column is completely messed up: for the US they display the upper limit of the federal funds target range (which is currently equal to the discount rate), but for the Euro area they display the deposit rate (which is 75bps lower than the marginal lending facility rate, which is the ECB equivalent of the discount rate).
I know this kind of table isn't the place to subtle discussion about the different types of interest rates, and how they are all different from one central bank to another, but at least compare rates that can be compared instead of picking an interest rate at random!
I honestly don't understand how this could have gone through proofreading…
I find it interesting that Vanguard is more bearish on US/EU economies than the rest of the street but are actually a bit more bullish when it comes to China. Maybe something to do with the Chinese having a lower interest rate?
That being said, the interest rate will depend on the state of the wars going on right now. The conflicts could pressure the prices of energy up which will lead to higher inflation and as a result keep interest rates high. The current situation is more of a geopolitical task than an economical one.
Sweet summer child, I wished you were right but what I see on CNBC every time tune in tells me the financiers are going to have their ways and rates will head to back to close to zero much sooner than you can say uncle. Soon the cost interest expense will be larger than defense in the US. This will call into question the sustainability of US fiscal policies and no politician would tolerate such inconvenience. If you’re explaining, you’re losing.
This is the kind of posturing people use to make it seem as though they are the ones with wisdom compared to the person that they are talking to. If your argument has merit it doesn't need such an intro so you're devaluing your contribution by prefixing it like that.
But what about massaging the ego behind the message? If HN comments are about anything, they're mostly either a straight-forward addition or clarification, a "I-know-more-than-you" trumpet parp, or a combination of the two... that comment was one of the latter.
I think they're obviously wrong. The long term interest rate is clearly trending to 0% [0] (and someone is lying about what "real" means, that interest rate wants me to believe my gold bar is getting bigger every year. I have a tape measure handy, it is not getting bigger in real terms [1]) and the US strategy is [see a crisis -> print some money], which is not a political environment that will tolerate borrowers getting a fair deal for any length of time. Something huge (ie, a financial crisis bigger than anything in the 1980 -> 2024 time period) will need to happen to buck the political zeitgeist.
[0] https://fred.stlouisfed.org/series/REAINTRATREARAT10Y
[1] Or we could use M2 as the adjustor where we get more realistic price movements... https://ingoldwetrust.report/chart-m2-gold-ratio/?lang=en