Interest rates: Now vs. the 80s?

Question

What are the chances that interest rates will ever reach as high as they did in the 80s in the coming 5-10 years. I know that nobody has a crystal ball, but what factors make it highly likely or highly unlikely?

Just as an example, take the rates on the 1 yr CMT. It's at 2.46 today. What are the chances we see it raise to 8 or 9 or 10 in the coming years?

Answer 1

They're gonna have to raise, because I don't think the Federal Reserve can lower interest rates anymore. It is simply stretched too thin.

Also, raising interest rates might be the only way to fight speculators nowadays, because threatening them with it just doesn't work anymore.

Banks made too many poor loans back then, and they did it again.

The 1 year CMT thought never hit 8 or 9 percent in the 80's, and I think it was worse then, but even then, it cycles.

Answer 2

Raising the interest rates now will bankrupt many consumers, home owners, mortgage companies, and banks.  And the US government would have to pay through the nose for its huge trillion dollar debts to domestic and foreign lenders.

I don't know if high interest rates would bankrupt the US government.  But the US government would have to cut back on its spending drastically in such a scenario.

Unlike in 1980's, USA is not in a good position now to raise the interest rates all the way up to 20%.  And if there is going to be any interest rate rises.  Then it will be largely symbolic.  And it won't be enough to make any real difference.

Perhaps after a few years of double-digit inflation, all the debts in the system will get devalued a lot.  And then the US government will be able to raise the interest rates without slitting its own throat.

One good way to make monetary debts go away is to devalue the money through inflation.  And that's probably  what the US government will try to do.