raising interest rates always kills the value of fixed rate assets and those who have fixed rate assets are always killed if their liabilities have floating interest rates (like deposits). this was a big part of the savings and loans crisis and a big reason why adjustable rate mortgages were invented (although their adoption took time).
long term interest rates have been kept low by the expectation of QE and have spiked precipitously when any suggestion of tapering is made.this is a liquidity trap in Keynes's original sense: when rising interest payments caused by rising interest rates can't make up for principal value losses and thus "uniform" expectations of rising interest rates empties the "market" of all buyers except the central bank. -- -Nathan Tankus ----------------------------------------------------------------------------------------------------------------------------------------------- _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
