{"id":31351,"date":"2018-02-21T10:13:31","date_gmt":"2018-02-21T15:13:31","guid":{"rendered":"http:\/\/olduvai.ca\/?p=31351"},"modified":"2018-02-21T10:14:12","modified_gmt":"2018-02-21T15:14:12","slug":"raising-interest-rates-is-like-starting-a-fission-chain-reaction","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=31351","title":{"rendered":"Raising Interest Rates Is Like Starting a Fission Chain\u00a0Reaction"},"content":{"rendered":"

Raising Interest Rates Is Like Starting a Fission Chain\u00a0Reaction<\/a><\/h3>\n
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Central bankers seem to think that adjusting interest rates is a nice little tool that they can easily handle. The problem is that higher interest rates affect the economy in many ways simultaneously. The lessons that seem to have been learned from past rate hikes may not be applicable today.<\/p>\n

Furthermore, there can be quite a long time lag involved. Thus, by the time a central banker starts seeing an effect, it may be clear that the amount of the interest rate change is far too large.<\/p>\n

A recent Zerohedge article<\/a>\u00a0seems to suggest that problems can arise with 10-year Treasury interest rates of less of than 3%. We may be facing a period of declining acceptable interest rates.<\/p>\n

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Figure 1. Chart from The Scariest Chart in the Market<\/a>.<\/p>\n<\/div>\n

Let\u2019s look at a few of the issues involved:<\/span><\/p>\n

[1] The standard reason for raising interest rates seems to be concern about inflationary impacts\u00a0occurring as a result of rising food and energy prices. In practice, the impact of such an interest rate change can be quite severe\u00a0and\u00a0quite delayed.\u00a0<\/strong><\/p>\n

Figure 2 is an illustration from the Bureau of Labor Statistics website showing one of today\u2019s concerns: rising energy costs. Food prices are not yet rising. Normally, however, if oil prices rise, the cost of producing food will also rise. This happens because modern agricultural methods and transportation to markets both require the use of petroleum products.<\/p>\n

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Figure 2. Figure created by the US Bureau of Labor Statistics showing percentage change in the Consumer Price Index between January 2017 and January 2018, for selected categories.<\/p>\n<\/div>\n

In fact, raising short-term interest rates seems to have been associated with trying to bring down rising food and energy costs, as early as the 1970s and early 1980s.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Raising Interest Rates Is Like Starting a Fission Chain\u00a0Reaction Central bankers seem to think that adjusting interest rates is a nice little tool that they can easily handle. The problem is that higher interest rates affect the economy in many ways simultaneously. The lessons that seem to have been learned from past rate hikes may […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[8419,124,1233,431,534,1232],"class_list":["post-31351","post","type-post","status-publish","format-standard","hentry","category-economics","tag-benchmark-interest-rate","tag-central-banks","tag-gail-tverberg","tag-interest-rates","tag-monetary-policy","tag-our-finite-world"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=31351"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31351\/revisions"}],"predecessor-version":[{"id":31353,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31351\/revisions\/31353"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=31351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=31351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=31351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}