Dirk McCoy

Higher Bond Yields: Are We Making Progress?

Thank you for your comments.

On the question of the linkage between higher rates, dollar value, and inflation, more dollars with the prospect of more supply capacity should translate to lower interest rates as the ability to back up debt with goods and services will support a stronger currency and mitigate inflation. More dollars with the prospect of fixed (or, heaven help us, reduced) supply capacity will create quite the opposite effect.

Beyond the Taylor Rule (which only applies to short term rates), I haven't got very far on quantitative calculations linking all this together (if you discount my fin prof. rule of thumb that rates are usually 4% above inflation). But, qualitatively, as long as our focus remains on improving productivity and spreading economic opportunity to maximize output, I don't believe high inflation, unworkable interest rates, or more radical concerns will be born out.

So, beware the CO2 police, social security/medicaid mob, and welfare state.