Treasury Secretary Yellen Says Higher Interest Rates Would Be Good For The Country

[mystery-ak]

Treasury Secretary Yellen Says Higher Interest Rates Would Be Good For The Country

John Carney 7 Jun 2021

Treasury Secretary Janet Yellen said President Joe Biden should push forward with his $4 trillion spending plans even if they generate inflation that forces the Fed to hike interest rates.

“If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” Yellen said Sunday in an interview with Bloomberg News.

Several prominent economists have warned that the spending proposals by Biden risk pushing inflation up to undesirable levels, which could force the Fed to raise rates faster than currently expected.

The Fed says that it wants inflation to average two percent over the long term. To achieve that, following years of low inflation, Fed officials say they will let inflation run higher than the target for some time. Fed chair Jerome Powell has said he expects a period of high inflation this summer will prove to be “transitory.”
“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” Yellen said.

The Consumer Price Index jumped 0.8 percent in April, an enormous monthly bout of inflation. The Department of Labor will release May’s CPI on Thursday. Economists expect inflation to slow down to 0.4 percent.

https://www.breitbart.com/economy/2021/06/07/yellen-welcomes-higher-rates/

[rustynail]

 'Higher Interest Rates Would Be Good For The Country', except for the servicing the debt part.

[Hoodat]

Treasury Secretary Yellen Says Higher Interest Rates Would Be Good For The Country

Then stop monetizing the debt and let the market set interest rates.

[Free Vulcan]

'Higher Interest Rates Would Be Good For The Country', except for the servicing the debt part.

Dang straight. Even a couple of points right now would drain a serious percentage in tax revenues per year.

[catfish1957]

For my own selfish reasons, I'd like to see a 2 or 3 year run of high rates, so I could lock in some good yielding corporate bonds.

Otherwise, there really isn't any upside for the country. Especially it as precursor to some serious inflationary pressures.

[Smokin Joe]

For my own selfish reasons, I'd like to see a 2 or 3 year run of high rates, so I could lock in some good yielding corporate bonds.

Otherwise, there really isn't any upside for the country. Especially it as precursor to some serious inflationary pressures.

You do have a point...but for people who are likely saddled with debt, it's gonna hurt.

[Free Vulcan]

You do have a point...but for people who are likely saddled with debt, it's gonna hurt.

That's another point you've swerved into. A lot of recent home purchases and improvement recently have been financed with, you guessed it, variable rate mortgages. The same ones that crushed the economy 15 years ago.

Its Dena by all over again.

[Hoodat]

Dang straight. Even a couple of points right now would drain a serious percentage in tax revenues per year.

Not if they balance the budget.  Higher interest rates would only affect future borrowing - not past borrowing.  Treasury bills are fixed.

[DB]

Not if they balance the budget.  Higher interest rates would only affect future borrowing - not past borrowing.  Treasury bills are fixed.

I'm no expert but I don't believe that is true. They have varying maturity periods, 10 years for example is a common one, where they have to be rolled over again. They are not forever.

[Free Vulcan]

Not if they balance the budget.  Higher interest rates would only affect future borrowing - not past borrowing.  Treasury bills are fixed.

Except our rollover period is very short because the rate would be too high to service 30-y bonds.

We'd feel the bite of that if rates stayed up for any period of time.

[IsailedawayfromFR]

You do have a point...but for people who are likely saddled with debt, it's gonna hurt.

Only if one incurs new debt.

Will not impact anyone say having a mortgage with a locked in rate.

[IsailedawayfromFR]

For my own selfish reasons, I'd like to see a 2 or 3 year run of high rates, so I could lock in some good yielding corporate bonds.

Otherwise, there really isn't any upside for the country. Especially it as precursor to some serious inflationary pressures.

I'd benefit as well.  Biggest problem I see is higher rates means invariably higher inflation as well, so purchasing power goes down.

[IsailedawayfromFR]

'Higher Interest Rates Would Be Good For The Country', except for the servicing the debt part.

What a stupid comment Yellen makes.

I always thought she looked like a deer in the headlights.

[skeeter]

Only if one incurs new debt.

Will not impact anyone say having a mortgage with a locked in rate.

Its actually good for holders of fixed rate loans. They will have ended up borrowing expensive money they will repay with cheap money.

[DefiantMassRINO]

Highly-leveraged, cash-poor institutions and their lenders would be at risk of a credit squeeze that could kick off a financial death spiral.

It would help to grow GDP (excluding government and healthcare), increase discretionary disposable income, and increase the velocity of money through the economy.

[IsailedawayfromFR]

Its actually good for holders of fixed rate loans. They will have ended up borrowing expensive money they will repay with cheap money.

Exactly.  No negative impact.

[Hoodat]

I'm no expert but I don't believe that is true. They have varying maturity periods, 10 years for example is a common one, where they have to be rolled over again. They are not forever.

That would be more borrowing.  If the budget is balanced, bonds wouldn't roll over.  They would be paid off and retired when due.  That money is already budgeted.

[DB]

That would be more borrowing.  If the budget is balanced, bonds wouldn't roll over.  They would be paid off and retired when due.  That money is already budgeted.

The treasury has to return the face value of the treasury note to you when it reaches maturity. Before that they have to pay you interest every six months at the rate the treasury offered it at.

The treasury doesn't have the money to pay for what they borrowed. So they have to roll over that debt into new treasury notes and then sold at whatever rate is required to get people to purchase them again.

It is old debt along with new debt that is constantly being rolled over.

[Hoodat]

The treasury doesn't have the money to pay for what they borrowed.

In that event, the budget isn't balanced.  If the budget is balanced, the debt gets retired when it becomes due.  Every annual budget includes money allocated for retiring debt.  If the bond is "rolled over", it means that the money was re-borrowed under a new term.

[libertybele]

In that event, the budget isn't balanced.  If the budget is balanced, the debt gets retired when it becomes due.  Every annual budget includes money allocated for retiring debt.  If the bond is "rolled over", it means that the money was re-borrowed under a new term.

I believe that the last time that the budget was actually balanced (and to his credit) was under Billy Bob Clinton.

[DB]

In that event, the budget isn't balanced.  If the budget is balanced, the debt gets retired when it becomes due.  Every annual budget includes money allocated for retiring debt.  If the bond is "rolled over", it means that the money was re-borrowed under a new term.

When you "buy" treasure note you are giving the government your money for a fixed term with a fixed interest rate. When that term expires the government has to return your money. When they return your money they have to roll over that debt to someone else to pay you back. At no point is any of that debt "paid off".

If the budget was balanced the debt wouldn't have occurred in the first place. Nothing is balanced or even close.

All of the past debt has to be continuously rolled over as the term for each note expires. So as interest rates go up the cost of servicing that debt goes up as it rolls over.

[Hoodat]

You're still not getting it.  Let's say the government sold a 10-year $2,000 note at 2% back in 2012.  In 2022, that note becomes due with interest ($2,438).  So the budget outlay for 2022 includes $2,438 to pay that note.  If the 2022 budget is fully funded (i.e. balanced), then that debt gets paid off.  No roll over.  No borrowing to pay it.  The money comes out of that year's revenue.

[Hoodat]

I believe that the last time that the budget was actually balanced (and to his credit) was under Billy Bob Clinton.

That is incorrect.  The last time the budget was balanced was in 1957.  Clinton came close one year, but even then the debt still increased.

[DB]

You're still not getting it.  Let's say the government sold a 10-year $2,000 note at 2% back in 2012.  In 2022, that note becomes due with interest ($2,438).  So the budget outlay for 2022 includes $2,438 to pay that note.  If the 2022 budget is fully funded (i.e. balanced), then that debt gets paid off.  No roll over.  No borrowing to pay it.  The money comes out of that year's revenue.

You are assuming that any of that debt gets paid off. It does not. At best they only pay the interest out of the budgeted expenses. The principle debt lives on. But in truth a portion of that "budget" is borrowed money so part of that interest paid becomes new debt too.

[skeeter]

That is incorrect.  The last time the budget was balanced was in 1957.  Clinton came close one year, but even then the debt still increased.

And Clinton had to be dragged kicking and screaming to sign that budget. It was the Gingrich House’s doing.