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TagInterest rates

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Aren’t US Treasury Bonds Supposed to be Safe?

How can you lose money selling treasury bonds?

For context, read Bartlett’s two previous articles on the fall of SVB and interest rates. Some people are confused as to how you can lose money selling treasury bonds, since they are supposed to be “safe” assets (the government is not expected to default on its loans, and, if it does, the economy probably has bigger problems). Economist Bob Murphy put together a great explainer thread on Twitter, which I will largely follow here. Let’s say that there is an asset that always yields a 1% return every year on however much you have invested, but you never get the principal back except by selling it to someone else. Let us call this asset ABC, and let us say that it is Read More ›

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Why Did the Tech Bubble Correspond with Low Interest Rates?

Ultimately, our economy’s deeper problems aren’t so much a result of “money” as they are bad allocations of resources.

For context, read Bartlett’s article explaining the fall of SVB here. I wanted to make a quick note about why tech bubbles tend to correspond with low interest rate environments. Interest rates essentially dictate how long someone can wait before they need to produce something of real value. In a 20% interest rate environment, it will be evident really quickly if you are failing to produce something of value. Since essentially 1/5 of your capital disappears each year, if you aren’t doing something that will generate real profits quickly, you are sunk. You can’t paper over problems with more borrowing because the cost of that borrowing is so high. Additionally, in such an environment, the payoffs for investment need to be large Read More ›