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naraburns  nihil supernum  1yr ago (text post)   4039 thread views

Small-Scale Question Sunday for March 26, 2023

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

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It seems self-evident that people with lots of loans and few assets (e.g. new families with unpaid student loans who just took on another loan to buy an expensive home) would lose from higher interest rates, is that correct?

Not necessarily, if the loans are fixed-rate and were taken out when interest rates were low, and then interest rates go up, the value of that loan in today-dollars just went down. There's no guarantee you'll be able to take advantage of this, but it could happen. Though yes, if you have to take out new debt, you're in a much worse position if interest rates are high.

Let's say I'm a young professional with a good wage, some minor investments and no major loans. For purely selfish reasons, should I want interest rates to go up or down?

IMO, you should want rates to be high. One of the ways you can think about investing for retirement is that you are using your money today to buy money 30 years from now. Higher interest rates lower the price of 2053 dollars in 2023 dollars, so you get more bang for your buck. This is true even if you are investing in stocks, as stock valuations discount expected future cash flows by the interest rate.

This all assumes the US economy keeps on chugging pretty much as it has been for the last 300 years, which may not be a valid assumption.

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