When will short term TBill rates have a meaningful rise?

[Bean]

One of the smartest groups of investors I know, so wanted to see what you guys think.

So when do you guys think there will be a meaningful increase in short term interest rates? What rates will we see? Bonus points if you think you can call the quarter 

[Bean]

with 2015 having the most votes, that makes me a sad panda. 

I am getting stir crazy with short term rates being at zero.

[MediumTex]

3-5 years at the earliest.

[Bean]

3-5 years at the earliest.

forever... that is all you needed to say 

[stone]

check out: Do we ever rise from the floor?
http://www.interfluidity.com/v2/3727.html

Krugman’s view, I think, is that we are in a period of “depression economics”? that will someday end, and then we will return to the status quo ante. The economy will perform well enough that the central bank will want to “tap the brakes”? and raise interest rates. The Fed will then shrink the monetary base to more historically ordinary levels and cease paying interest on reserves.

I’m less sure about the “someday end”? thing. The collapse of the “full employment”? interest rate below zero strikes me as a secular rather than cyclical development, although good policy or some great reset could change that. Regardless, if and when the Fed does want to raise interest rates, I think that it will not do so by returning to its old ways. A permanent institutional change has occurred, which renders past experience of the scale and composition of the monetary base unreliable.

To understand the change that has occurred, I recommend “Divorcing money from monetary policy by Keister, Martin, and McAndrews. It’s a quick read, and quite excellent. Broadly speaking, it describes three “systems”? that central banks can use to manage interest rates. Under the traditional system and the “channel”? system, an interest-rate targeting central bank is highly constrained in its choice of monetary base. There is a unique quantity of money that, given private sector demand for currency and reserves, is consistent with its target interest rate. However, there is an alternative approach, the so-called “floor”? system, which allows a central bank to manage the size of the monetary base independently of its interest rate policy.

Under the floor system, a central bank sets the monetary base to be much larger than would be consistent with its target interest rate given private-sector demand, but prevents the interbank interest rate from being bid down below its target by paying interest to reserve holders at the target rate. The target rate becomes the “floor”?: it never pays to lend base money to third parties at a lower rate, since you’d make more by just holding reserves (converting currency into reserves as necessary). The US Federal Reserve is currently operating under something very close to a floor system. The scale of the monetary base is sufficiently large that the Federal Funds rate would be stuck near zero if the Fed were not paying interest on reserves. In fact, the effective Federal Funds rate is usually between 10 and 20 basis points. With a “perfect”? floor, the rate would never fall below 25 bps. But because of institutional quirks (the Fed discriminates, it fails to pay interest to nonbank holders of reserves), the rate falls just a bit below the “floor”?.

If “the crisis ends”? (whatever that means) and the Fed reverts to its traditional approach to targeting interest rates, Krugman will be right and I will be wrong, the monetary base will revert to something very different than short-term debt. However, I’m willing to bet that the floor system will be with us indefinitely. If so, base money and short-term government debt will continue to be near-perfect substitutes, even after interest rates rise.