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Comment by joeyrideout | Hacker News Reader

The ECB is negative and preparing to cut lower.

BoJ is buying 90%+ of their own bond market.

Emerging markets are blowing up routinely, most recently Argentina.

Australia and Canada have their own issues.

The U.S. isn't perfect but it's comparatively safe with a large military and reserve currency status with positive interest rates giving them room to react short term.

(Edit: To be crystal clear, this relative safety on the world stage means the USD is in demand as a "flight to safety". Same can be said about Treasuries, which is why domestic economic analysis doesn't necessarily align with the recession indicator of an inverted yield curve. The world could be going into recession. It's also worth noting that Gold has been rallying in USD terms, which tells us it's even safer.)

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The crazy thing is that the US is pricing its treasuries between Greece and Italy.

In other words, the US could pay much less for debt if it wanted to.

https://tradingeconomics.com/bonds

No other developed country is paying anything near that amount. That is drawing a large inflow of capital into long-term treasuries, which in my view, is the true cause for the recent inversion.

There's no question it's a bizarre choice given the epic funding requirements of the US Government now and for the foreseeable future ($12t in new debt minimum over the next ten years).

The Fed should be attempting to smash the cost of US Government debt to the floor so the treasury can issue 50 year paper at 1.x% while there may be a window to do so.

It would be very unpopular with the wealthy and the private US financial system. I believe it's the sole reason they're not working aggressively to minimize what the US is paying for its debt vs other more risky nations. The Fed views the private financial system as a critical partner. To an extent by intentionally leaving borrowing costs higher than they have to be, they're performing a middle ground compromise with those partners vs the government's fiscal condition.

The Fed explicitly does not involve itself in fiscal policy like this. This is a good part of the reason that people trust US currency.

> The Fed should be attempting to smash the cost of US Government debt to the floor

We have an “indepedent” central bank with a limited set of policy concerns which do not include this type of thing specifically so that “fiscal” concerns [0] like this are not factors in setting monetary policy.

[0] MMT correctly points out that the category is based on a fiction, but even MMT advocates (while they want Congress to consider monetary impacts of what has historically been considered fiscal policy instead of the fiscal myth) don't generally want the central bank doing the kinds of things that have been considered “fiscal”.

Maybe they are afraid lower rates will inflate assets even more or cause another subprime bubble?

We need to consider this 'the US could pay much less for debt' line that is recently being pushed.

This is appealing to simple thinkers as it's true on the surface. America pays less ..great. It suits Trump's short term planning agenda naturally. But it fails to recognise a key point. Central banks interest rates aren't priced to coumtries 'the best rates', of borrowing. They are about controlling monetary policy.

Sure every country could drop interest rates to rock bottom. But what happens if inflation drops. Or a recession is looming? At a national level you need to look at higher interest rates as 'growth in the bank' for the future. And in the same way you should keep savings on hand, a govt should keep interest rate movement available for when times are worse.

Further, central bank rates effect consumer rates. Not everyone is eyeballs deep in debt looking for cheaper lending. We have to acknowledge savers too. There was a time not so long ago where people put money into banks expecting to make a reasonable profit. It feels like savers are a forgotten group. It's not suitable for everyone to load their savings into the market and hope timing suits their withdrawal needs.

This post-2008 era is going to be really interesting to study in another 20 years or so when it's played out.

>To be crystal clear, this relative safety on the world stage means the USD is in demand as a "flight to safety". Same can be said about Treasuries, which is why domestic economic analysis doesn't necessarily align with the recession indicator of an inverted yield curve. The world could be going into recession. It's also worth noting that Gold has been rallying in USD terms, which tells us it's even safer.

In other words, this is 1997 as opposed to 2007-2008.

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