Interest rates are moving too fast

[Aubuy]

Banks now carry very large amounts government debt on their books and they show these bonds as assets on their balance sheets. Governments have "encouraged" banks to buy these bonds. Interest rates are now rising quickly so that these "assets" are dropping in value. That means that the book value and capital ratio of banks is now changing rather quickly which can't exactly be what the Fed had in mind. Same problem for anybody who has PM's as an asset on their balance sheets since metal prices are dropping, or for people who are thinking about getting a mortgage or refinancing. All the math is changing to the downside. So as near as I can tell this jump in interest rates is going to be a big problem and I am guessing that the Fed is going to be back soon with another announcement or eles the party might stop too soon.

 

[pmbug]

Yeah, I read an article in a paper (print edition) the other day that had polled "economists" with varying viewpoints on whether Bernanke's tapering talk was too much too soon or not. Looks like the market is answering that question.

It's not easy playing with a house of cards.

 

[benjamen]

http://dollarcollapse.com/the-economy/the-nightmare-scenario/

Since a recent low in the rates in May, the 10 year treasury interest rate has gone up by almost a full percentage point.

"This is a global story, since Treasuries have been everyone’s safe haven of choice for decades .... US interest rates are, with a few notable exceptions like Japan, the base of the global yield curve. Everything else, being riskier, has to have a higher yield. So a doubling of US rates means a commensurate ratcheting up of everyone else’s rates."

"Since equities are valued in part in relation to the yield on available bonds, rising interest rates mean lower stock prices – everywhere. And real estate, which is generally leveraged, has just gotten a lot more expensive"

 

[Aubuy]

Fed is back pedaling today (as expected) and has sent minions to let everybody know that they will of course keep buying bonds and perhaps even more bonds, if the economy is still struggling (and of course it will still be struggling). So the markets are going back up again and it looks like another false alarm (whew, i can come back in off the ledge now) It's reassuring how predictable the Fed seems to be. The trouble is I don't thnk they will ever be able to shrink their balance sheet and have painted themselves into a corner.

 

[Potemkin]

I think there's a high chance the Fed might surprise us with higher interest rates after 2015. Until then, they're fixed.

But: once they admit the real inflation rate after all that mad QE frenzy... I guess runaway inflation is likely to happen.