Comment by cjensen | Hacker News Reader

Comment by cjensen | Hacker News Reader

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Your comment contains a lot of info that is not the consensus view of economists and businessmen.

Yes, interest rates going up lowers the price of bonds because "interest rates up" is mathematically equivalent to "bonds are cheaper."

The notion that changes in interest rates, which generally correlate with inflation, would alter the price of stocks is not obvious to me. Not sure what mechanism you would propose that would cause that to happen.

The US Government has the right to print USD. The notion that they could someday be unable to pay USD-denominated debts is therefore obviously wrong. Also, it is very much in the interests of exporters like China that USD remain strong, and they will likely just add the newly-minted USD to their USD reserves.

When proposing financial disasters, you can take these same types of fears and make them more plausible. E.g. propose that the US Government will overspend, weaken the dollar, cause the dollar to lose status as a reserve currency, and force future US debt to be denominated in something other than USD. Or propose that a sudden increase in inflation might cause effective salaries to decline or be uncertain, leading to a decline in consumer confidence and a recession.

Inflation uncertainty worries me the most. But I don't think there are any nightmare scenarios coming soon.

> The US Government has the right to print USD. The notion that they could someday be unable to pay USD-denominated debts is therefore obviously wrong.

That turns into a hyperinflation, though - where you print the money to pay the interest on the debt, but that creates more inflation, so interest rates go up, so you have to print more money, which creates more inflation...

The end of that process is often a total loss of confidence in the government. That in turn often leads to a change of the form of government - usually not for the better.

Hyperinflation happens when you print USD to pay non-USD-denominated debt, because you'd have to print an infinite amount. The interest rate describes how much you have to print to pay USD debt, and it's consistently not been much (or even a negative amount) for decades.

> That in turn often leads to a change of the form of government - usually not for the better.

If this is a veiled reference to Nazi Germany, that was not Weimar inflation, it was caused by deflation later. Why hard money people are terrified of hyperinflation instead of deflation, when that's worse, I don't know.

An example of a country that does everything wrong economically and has constant inflation is Argentina, but oddly it's still there and nobody seems to be overthrowing it.

> Hyperinflation happens when you print USD to pay non-USD-denominated debt, because you'd have to print an infinite amount.

Why is hyperinflation limited to that single scenario?

It's not the only way to get there, but it is the fastest way, and an important difference between large and small countries is the US doesn't have this problem.

> The notion that changes in interest rates, which generally correlate with inflation, would alter the price of stocks is not obvious to me. Not sure what mechanism you would propose that would cause that to happen.

Higher rates -> reduced accessibility of personal credit -> lower spending -> lower corporate revenue -> higher cost of borrowing -> higher cost of debt service -> lower profits -> stock price

Rates act as a global parameter that impacts performance of companies differently, with the consensus understanding that it impacts debt-fuelled (or what we now usually call growth) companies the most.

> Higher rates -> reduced accessibility of personal credit -> lower spending -> lower corporate revenue -> higher cost of borrowing -> higher cost of debt service -> lower profits -> stock price

I think it's simpler than that. An absurd example: if T-bills suddenly start yielding 12%, capital will flee from stocks to T-bills.

This. As bond rates rise capital moves out of stocks over to bonds. Bonds are higher in the capital structure as well. When bond rates go absurdly low capital moves into stocks (as we have seen).

Will they ever yield that?!

Doesn't matter. People don't invest exclusively in one of stocks or bonds, but diversify. A higher interest rate might make bonds slightly more attractive on a continuum.

Bring back the 80’s.

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