No Free Lunch with Interest Rates
The Dividend Cafe
The Dividend Cafe - The Bahnsen Group
4.9 • 572 Ratings
🗓️ 28 April 2023
⏱️ 17 minutes
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Summary
Today's Post - https://bahnsen.co/3ncX8V7
The subject of bank stability has really been a big conversation topic since the failure of Silicon Valley Bank and Signature Bank back in mid-March. People have wondered who was to blame, what went wrong, what could have been different, and what else is still going to happen that we may not know about.
I have written in these pages already about Sunday afternoon dramas and the market instabilities that generally create such events. Notice how I worded that, for it was intentional. Sunday afternoon dramas do not create market instabilities; market instabilities create Sunday afternoon dramas. And as we navigate through a change in the present financial cycle, a little perspective is warranted on what has been driving financial cycles. In fact, if we do this well we may just understand not only how this fits into Sunday afternoon dramas and the broad reality of market disruption risk; we may also understand a lot more about the federal reserve, interest rates, and basic financial behavior.
So let's jump into the Dividend Cafe ...
Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
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| 0:00.0 | Welcome to the Dividend Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. |
| 0:10.0 | Hello and welcome to the Dividend Cafe. I love recording here from our Newport Beach studio. |
| 0:19.0 | And I love the topic of this week's Dividing Cafe. |
| 0:21.7 | We're talking a lot right now in the markets about where we are in the banking system, |
| 0:27.7 | where the Fed is in their cycle with interest rates, and what it means to the overall economy. |
| 0:35.3 | And I think that when you start talking about financial cycles, it behooves us to |
| 0:41.6 | review monetary policy, but have a better understanding of the way the world works. |
| 0:47.4 | And this is a passion of mind to apply the sort of behavioral logic of economics to monetary policy. And I think that |
| 1:00.3 | there is a lot of interesting application to that when you apply it to personal finance, |
| 1:06.7 | when you apply it to individual investment decision making. But I also think on the macro that when we understand it better as it pertains to policymakers, |
| 1:16.1 | to governments, and yes, to banks, that we get a clear understanding of the way the world works |
| 1:22.5 | and maybe, just maybe, what can be done to make it better in the future, learning from mistakes that |
| 1:29.3 | one could argue have been made. One of the great principles in understanding economics is the |
| 1:37.5 | notion of trade-offs being an inevitable reality. |
| 1:50.2 | Sort of codified in a famous line that Milton Friedman used in a paper where he said, |
| 1:51.1 | there's no free lunch. |
| 1:56.2 | And I ended up titling my last book, the same thing, there's no free lunch. |
| 2:06.8 | And all that concept is really trying to capture is that there are tradeoffs and that people do cost benefits analysis and that that's okay. |
| 2:12.3 | It doesn't mean everything is bad just because there's a cost to it. |
| 2:20.6 | We voluntarily take on cost all the time, but we do so when we've consciously weighed the cost against what it is that we're trying to achieve. I think that one of the fundamental errors |
| 2:26.3 | of modern policy, contemporary approach to monetary policy, is this notion that we can use easy and overly accommodative policy |
| 2:37.5 | without a tradeoff, that there won't be a price to pay for excessively low interest rates |
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