As the older generation approaches retirement, they tend to move their finances into more safe accounts such as money markets. They are not providing the minimal returns. The returns today begin at 1.75 percent and fall to 1.00 percent (click here). At one time the money markets were earning just under 5 percent; that is now a fantasy.
20 September 2016
Remarks by Stephen S. Poloz, the Governor of the Bank of Canada
It is not often (click here) that I get to speak to a room full of economists and, believe it or not, I consider it a privilege. People say that economists can never agree on anything, but I suspect that we can agree on at least one thing. What is the number one issue that people ask economists about today? It is ultra-low interest rates.
20 September 2016
Remarks by Stephen S. Poloz, the Governor of the Bank of Canada
It is not often (click here) that I get to speak to a room full of economists and, believe it or not, I consider it a privilege. People say that economists can never agree on anything, but I suspect that we can agree on at least one thing. What is the number one issue that people ask economists about today? It is ultra-low interest rates.
You probably get questions from both sides, just as I do. Young folks with mortgages regularly thank me for keeping interest rates low. When I think about how much cumulative interest I have paid in my lifetime, it is no wonder that they are grateful. But I also hear from people, especially retirees, who are unhappy because they have saved their whole lives and are getting very little income from those savings today.
Now, it is natural to give central banks the credit—or the blame—for ultra-low interest rates. Low rates have been with us since the global financial crisis. The G7 central banks implemented coordinated interest rate cuts in 2008—a sign of just how serious the situation was. Some of the hardest-hit economies, such as the United States, Europe and Japan, implemented unconventional policies to ease monetary conditions further. Without these efforts, the global economy could have fallen into a second Great Depression.
We avoided that fate. But since that time, policy rates have generally remained extremely low, mainly because the economic headwinds that the crisis created have been slow to fade. Some central banks have even gone to negative interest rates, a bizarre concept for many, and bond yields across the curve are also ultra-low. In fact, more than US$10 trillion of government debt is currently trading with a negative yield....
Minimum interest rates can be dictated by the bank or investment firm that conducts money markets, but, there is something more to understand.
...The real neutral rate is a theoretical concept that can’t be directly measured, and central banks don’t control it. But it is extremely important to understand: it is the inflation-adjusted risk-free interest rate in an economy—the real interest rate that is neither stimulative nor contractionary when an economy is operating at full capacity without cyclical forces at play, thus balancing desired savings and investment. Presently, Bank staff estimate that the real neutral rate falls into the range of 0.75–1.75 per cent, which translates into a range for the nominal neutral rate of 2.75–3.75 per cent. This is down from a range of 4.50–5.50 per cent in the pre-crisis period....
In thinking about local economies, what is the return on the investment dollar? Growth. Don't get carried away with thinking about a global economy. The local economy has an interest rate. Sometimes it is as volatlle as a good year for tourism vs a bad year for tourism.
What is the baseline interest rate an investor will receive if the local economy is robust and MATURE.
How much is your local economy paying for money? Is it a real assessment of the local economy growth or is it higher than the baseline return on investment of the growing local economy?
MUNI(cipal) Bonds
- Attractive income: Municipal bonds (click here) have offered an attractive level of income across tax brackets in what is still a low-yield environment.
- High-quality, low-volatility: Munis have experienced lower volatility than other bond categories.ᵻ
- A hedge against equity risk: Correlations between equities and bonds are now diverging, which means bonds can provide a better offset to equity risk than they have in some time.
I think when most people decide about the growth and investment return of their local economies, the reason for an "Infrastructure Bank" is important. Of course, an infrastructure bak does not alienate he financial sector. It is a private-public bank that provides he best interest to local economies.
The Republicans in DC don't want in infrastructure bank because it would cut into the interest rates paid in Muni Bonds.
A spate of municipal bond (click here) issuance this year is fueling a wide range of infrastructure projects across the country.
Analysts say as much as $400 billion in muni bonds may be sold this year, nearly a record high, to improve schools, airports, roads and other infrastructure.
The low-interest rate environment is encouraging cities and states to not just repay debt issued at higher cost, but to also plow additional funds into infrastructure projects, ranging from water and sewer improvements in California, a new terminal at New York’s LaGuardia Airport to new road work in Texas, noted Bloomberg.
It’s a strange time, then, for calls to change or eliminate the tax exemption....
Funding for a growing local economies should resemble the baseline interest rate of monies to the financial sector with a little more interest, not exceptional interest, to attract the investors.
Why only a little higher than the financial institutions are paying for borrowed monies? Because Muni Bonds are tax exempt. So, while local economies may offer bonds to facilitate growth and repaired infrastructure, their return on the investment dollar is supplemented by the reality they are tax exempt. Dollar for dollar Muni Bonds offer more advantage to investors.
Assessing a local economy and it's ability to grow and provide investment interest is vital to maintaining a healthy local budget that balances all bonds with potential to growth.
Bond issues on any ballot should be reviewed for the interest rate of the bonds vs. the core economic percent growth of the local economy. It is important to keep local tax rates reasonable to insure growth in consumer spending. The local economy does not want higher taxes if the local economy borders on it's own growth rate and it does not want to simply oppress taxes if a stronger local economy will benefit from infrastructure projects.
An infrastructure bank provides a far lower interest rate across the board for local economies, but, especially for the cities and towns that border on it's own economic growth rate. An infrastructure bank can provide a low enough tax rate to reboot stagnant economies. Every project should come with an estimate of it's value to the consumer and consumer dollar to insure growth. The consumer is where growth begins.
The Republicans in DC don't want in infrastructure bank because it would cut into the interest rates paid in Muni Bonds.
A spate of municipal bond (click here) issuance this year is fueling a wide range of infrastructure projects across the country.
Analysts say as much as $400 billion in muni bonds may be sold this year, nearly a record high, to improve schools, airports, roads and other infrastructure.
The low-interest rate environment is encouraging cities and states to not just repay debt issued at higher cost, but to also plow additional funds into infrastructure projects, ranging from water and sewer improvements in California, a new terminal at New York’s LaGuardia Airport to new road work in Texas, noted Bloomberg.
It’s a strange time, then, for calls to change or eliminate the tax exemption....
Funding for a growing local economies should resemble the baseline interest rate of monies to the financial sector with a little more interest, not exceptional interest, to attract the investors.
Why only a little higher than the financial institutions are paying for borrowed monies? Because Muni Bonds are tax exempt. So, while local economies may offer bonds to facilitate growth and repaired infrastructure, their return on the investment dollar is supplemented by the reality they are tax exempt. Dollar for dollar Muni Bonds offer more advantage to investors.
Assessing a local economy and it's ability to grow and provide investment interest is vital to maintaining a healthy local budget that balances all bonds with potential to growth.
Bond issues on any ballot should be reviewed for the interest rate of the bonds vs. the core economic percent growth of the local economy. It is important to keep local tax rates reasonable to insure growth in consumer spending. The local economy does not want higher taxes if the local economy borders on it's own growth rate and it does not want to simply oppress taxes if a stronger local economy will benefit from infrastructure projects.
An infrastructure bank provides a far lower interest rate across the board for local economies, but, especially for the cities and towns that border on it's own economic growth rate. An infrastructure bank can provide a low enough tax rate to reboot stagnant economies. Every project should come with an estimate of it's value to the consumer and consumer dollar to insure growth. The consumer is where growth begins.
