I am more or less financially illiterate, relying on my financial advisors over the decades for my retirement strategies. In retrospect, I probably should have had a little more interest in econ 101.
As I am just a few years away now from full retirement, I have been working with said advisor to make necessary adjustments to my retirement strategy in order to maximize my benefits and minimize my taxes as my pensions and SS and retirement funds start to pay out.
Anyway I was at an event last night with one of the financial company speakers and they gave a really good economic history and outlook report with lots of charts showing the various metrics used to measure the health of the economy. I learned a lot.
One of the things I learned was that while high interest rates are generally bad for consumers, and thus the consumer economy, zero interest rates are also bad. According to the financial experts, 2 to 3 percent represents a healthy economy. Reason being if the interest rates are too low, you get close to negative inflation, and if consumers think the car they want to buy will be cheaper in 6 months, they wont buy it today. So to keep the consumer economy booming, you don’t want to have disincentives like that to buying.
I also learned why the left says the recovery stated 10 years ago under Obama. The stats do indeed show that the real downturn was in 2007/2008 due to the housing/loan collapse and that jobs started recovering ever since, but only at a very anemic pace. Trump removing regulation unleashed what was already a recovery. The funny thing was that the Fed held rates at zero for all 8 years with Obama, a sign they were worried the entire time about the health of the economy, and I guess based on the previous paragraph, created a disincentive to recovery.
One of the thoughts as to why Trump wants to head back to zero is because that is where other countries are now, which says how bad their economies are. So there seems to be a tension between having a healthy rate and competing for obtaining investment dollars. But that caused concern with the investor presenting for the reasons stated above.
Oh, if you want the bottom line, they are bullish on the economy and say don’t listen to all the media hype about coming recession. The media needs a crisis so that you will tune in to them, so they can get the ratings and sell ads.
People forget that a major part of the mortgage crisis was that institutions that needed to be earning about 8-9% return on their money, were forced to buy risky subprime mortgage MBS, because that was all that paid enough.
We need to get back up to an interest rate where both borrowers and lenders can survive.
“One of the thoughts as to why Trump wants to head back to zero is because that is where other countries are now”
Yes, there is that. Higher interest rates here means that global capital buys more of those higher-yielding US bonds, driving up the demand for/price of the dollar. A stronger dollar in turn makes US goods less competitive, and imports more competitive, hurting our trade balance.
Also, lower rates just stimulate the economy broadly in the short term. Every President would want rate cuts the year before an election.