Good analysis but on a forward curve, the government now also has to borrow at a higher interest rate (on a higher aggregate amount of debt)...unclear it's a victory worth celebrating
So what's interesting to me is that inflation expectations never became unanchored (just based on where inflation-indexed bonds are trading), everyone is treating this as a one time thing, so this bout of inflation just ends up being a one time gain for borrowers like the US treasury. It's not like the 1980s where you had bonds being issued at double digit rates that had to be paid even once inflation dropped to 3%. Long term rates are higher today than they were but still low by historical standards - certainly lower than they ever were pre-2008 for example.
There are some offsets like the Fed having to raise short term rates to fight inflation raises the cost of T-Bills and reserves, but I didn't include it because it's smaller - call it $8tn outstanding so 5% is $400b a year. But the broader point here is that people will debate the meaning of a miniscule bailout that makes it into the headlines because of the circumstances but never notice the stuff going on in the background that ends up being a much bigger deal.
> the broader point here is that people will debate the meaning of a miniscule bailout that makes it into the headlines because of the circumstances but never notice the stuff going on in the background that ends up being a much bigger deal.
As individuals we all need to surf the waves created by massive government interventions into the market.
I'm of the school that the government is doing their best. They had a tough situation to navigate with Covid and they missed the mark with monetary policy. It's not the first time this has ever happened. The days before government interventions where much more volatile.
Wrt SVB my guess is this will be seen as a regulatory failure, and policies will have to be revised in the future.
Good analysis but on a forward curve, the government now also has to borrow at a higher interest rate (on a higher aggregate amount of debt)...unclear it's a victory worth celebrating
Thanks!
So what's interesting to me is that inflation expectations never became unanchored (just based on where inflation-indexed bonds are trading), everyone is treating this as a one time thing, so this bout of inflation just ends up being a one time gain for borrowers like the US treasury. It's not like the 1980s where you had bonds being issued at double digit rates that had to be paid even once inflation dropped to 3%. Long term rates are higher today than they were but still low by historical standards - certainly lower than they ever were pre-2008 for example.
There are some offsets like the Fed having to raise short term rates to fight inflation raises the cost of T-Bills and reserves, but I didn't include it because it's smaller - call it $8tn outstanding so 5% is $400b a year. But the broader point here is that people will debate the meaning of a miniscule bailout that makes it into the headlines because of the circumstances but never notice the stuff going on in the background that ends up being a much bigger deal.
> the broader point here is that people will debate the meaning of a miniscule bailout that makes it into the headlines because of the circumstances but never notice the stuff going on in the background that ends up being a much bigger deal.
As individuals we all need to surf the waves created by massive government interventions into the market.
Is this really the optimal economic policy?
I'm of the school that the government is doing their best. They had a tough situation to navigate with Covid and they missed the mark with monetary policy. It's not the first time this has ever happened. The days before government interventions where much more volatile.
Wrt SVB my guess is this will be seen as a regulatory failure, and policies will have to be revised in the future.