Lower interest rates are usually considered good for stocks because they lower the cost of borrowing and make bonds a less attractive alternative investment.
If you are prepared for some risk, junk bonds pay about 5%, but they tend to get whacked when interest rates rise. Same with lower-yielding but higher-quality corporate bonds.
Monetary policy has less room to maneuver when interest rates are close to zero, while expansionary fiscal policy is likely both more effective and less costly in terms of increased debt burden when interest rates are pinned at low levels.
Our approach is to reject the old vicious circle of the '80s-rising debt, higher long-term interest rates, higher debt repayment costs, lower growth, higher unemployment, then enforced cuts in public spending. That was the old boom and bust.
Businesses and households react to lower rates by investing and spending more. Lower rates also support the prices of housing and financial assets such as stocks and bonds.
To finance deficits, the government must sell bonds to investors, competing for capital that could otherwise be used to invest in stocks or corporate bonds. Government borrowings raise long-term interest rates, stifling economic growth.
Logically, it may be argued that banks could indeed lower interest rates and make up their profits through larger borrowing volumes. But banks, in turn, could justify exorbitant rates by arguing that they cater to a riskier segment.
Let's have honest interest rates. Let's let the free market set interest rates in that zone where supply of savings is matched up with demand for real borrowing for capital projects.
Student debt is crushing the lives of millions of Americans. How does it happen that we can get a home mortgage or purchase a car with interest rates half of that being paid for student loans? We must make higher education affordable for all. We must substantially lower interest rates on student loans. This must be a national priority.
Rising interest rates are considered bad for stocks because they raise the cost of doing business and depress corporate earnings and because higher yields make bonds relatively more attractive than stocks to investors.
I have long argued that paying down the national debt is beneficial for the economy: it keeps interest rates lower than they otherwise would be and frees savings to finance increases in the capital stock, thereby boosting productivity and real incomes.
Higher projected corporate and personal income tax receipts and lower public debt charges.
When yields on corporate bonds are lower than dividends on stocks, that unnerves me.
I think everybody in this generation, and I'm the leading edge of the baby boom - I was born in 1946 - has benefitted from a 30-year explosion of debt, which created temporary but unsustainable economic prosperity and a financialization of the system through lower, and lower, and lower interest rates that has created massive rewards to speculation but not real investments so I benefitted from it. Almost everyone who has been in the market has benefitted but they didn't earn it.
With all this consumer debt, business debt, government debt, smaller movements in interest rates have a magnified effect. a small movement can tip the boat.
What's true for New York is true for most of the country: We are a long way removed from the double-digit interest rates and unemployment rates, and the soaring crime rates, of the early 1980s.