Goldilocks, “Neutral Interest Rates”, Inflation and the Unfrozen Mechanical Royalty

The U.S. central bank, the Federal Reserve, is expected to raise their target interest rate by 1/2% or (“50 basis points”) several times this year. These rate raises are usually executed at meetings of the Federal Reserve on a monthly basis.

How high will these rates go? One way to look at a potential near-term target is for the Fed to reach a “neutral interest rate”, that is one that is neither accommodative nor restrictive. Given that inflation is currently in the 8% range and likely to go higher still in the near term, that means raising the federal funds rate to over 8%. Such an increase highlights the debt trap that the US is in (along with most of the world), because if the government had to pay over 8% for government bonds it would bankrupt the country or require massive tax increases in a shrinking GDP. The failure to tax as we went along is, of course, how we got here. Government will always take easy money debt that nobody really notices rather than tax to pay as it goes, which everyone will notice and not like.

If the federal funds rates increase, then all other interest rates will increase including mortgages (and therefore rents), credit cards, and so on. You would expect to see credit card interest rates at or above 25%, for example, so if you’ve been paying for inflation on the credit card, you see where this leads.

This is all, of course, for your own good as you will be told by the same nomes who told you inflation was transitory.

The worst thing that the government could do (as President Nixon discovered in the 1970s) is to impose wage and price controls, and frozen mechanical rates are just such a wage and price control depending on which side of the sale you are on.

This is all the more reason why if the Copyright Royalty Judges are going to keep the 9.1ยข rate for vinyl, it must be indexed just like it should be on the streaming mechanical side of the house when the Google, Amazon, Apple and Spotifys of this world are paying the freight.

Or we could come up with a formula that would allow the mechanical royalty to vary inversely to the total legal fees spent (some might say wasted) in the Copyright Royalty Board. Instead of TCC we could adopt TLF and the proxy for songwriters.

But brace yourself–if you don’t get the inflation adjustment to the mechanical rate, whatever the base rate is, you are going to be looking for a chair if the fed funds rate gets to “neutral.”