tag:blogger.com,1999:blog-7806136543904112143.post3901469868801697222..comments2023-10-30T09:23:42.803-05:00Comments on Some Assembly Required: SAR #12209Charles Kingsley Michaelson, IIIhttp://www.blogger.com/profile/04364694465614330540noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-7806136543904112143.post-1534088605035894912012-07-28T22:30:19.785-05:002012-07-28T22:30:19.785-05:00It is the Fed that's holding down interest rat...It is the Fed that's holding down interest rates, but not in the way most people think. In a fiat money system, money is not a commodity because it is not scarce. It is simply a number on a balance sheet, and can be multiplied by simply typing in different numbers. So, theoretically, it is always possible to have as much money in an economy as that economy needs. (The opposite of scarcity is adequacy, not infinity.) It is absurd even to speak of "debt" when the supposed debtor is the monopoly creator of the thing it "owes" and can create that thing out of thin air with virtually zero marginal cost. <br /><br />Since fiat money is not scarce, its price is not determined by supply and demand, as is the case with commodity money. Rather, in a fiat system, interest rates also ultimately are set by fiat. This is not done directly in the U.S. but rather indirectly via constant Fed intervention in the interbank reserve market. Specifically, the Fed adjusts the quantity of reserves in the banking system to whatever it needs to be to produce the interest rate the Fed wants.<br /><br />People fearing inflation are using the wrong model. They are thinking in commodity money terms, which would have been applicable in the U.S. before 1971. Those models still are applicable to governments that have to use another government's currency, such as U.S. states and EU countries, because to those governments, the currency they use effectively IS a commodity since they cannot create it and have to obtain it from someone else.Anthonynoreply@blogger.comtag:blogger.com,1999:blog-7806136543904112143.post-4307450022209198982012-07-28T18:44:35.677-05:002012-07-28T18:44:35.677-05:00This "flight to safety" is the essence o...This "flight to safety" is the essence of why Keynesian economics works. Recessions (or depressions) are marked by low interest rates and ample supplies of labor. The time to focus on paying off debt is during times of plenty when labor is tight and interest rates are high.<br /><br />This is not <i>that</i> much rocket science.<br /><br />The real problem is the second part of the Keynesian model (as usual) is not being implemented now: namely, putting the unemployed back to work. However, what Ben Bernanke could not tell Congress was: this is <i>your</i> job (you dolts!). Labor, having lots of supply, is relatively cheap right now. There is plenty of work to do (repairing, replacing, refurbishing, replanting, recycling and building renewable energy). Unlike what the dominant message on most of the financial networks, media, periodicals and blogs are telling you, <b>we are not broke</b>. There is plenty of money, we just have a problem with tight-fisted misers who want to make money off of it rather than help the country. The problem is that when you already own 93% of the assets of an economy, there is not much left you can take. What we need is for them to give back to supply the country with the capital needed to implement a massive rebuilding effort.<br /><br />We can borrow in the short term; but we need to get the economy moving to make it useful.OkieLawyerhttps://www.blogger.com/profile/03835804433027036043noreply@blogger.comtag:blogger.com,1999:blog-7806136543904112143.post-42614460947967223982012-07-28T16:36:50.045-05:002012-07-28T16:36:50.045-05:00Not so sure about that, Anony 4.24. Interest is t...Not so sure about that, Anony 4.24. Interest is the price of money and the price of a good depends on the demand as well as supply. The Fed's created money - the excess supply - is hidden away in 'excess reserves' (for now). There is no significant demand from corporations to drive up the price (interest) - most of which are sitting on piles of cash already - and the consumer isn't over-eager to pile on debt either, so demand is pretty low. So my non-economist view would be that it is the market, not the Fed, that is holding rates down. Low rates are the Fed's aim, but the dead economy is holding the corporations and consumers from bidding for loans.<br /><br />ckmCharles Kingsley Michaelson, IIIhttps://www.blogger.com/profile/04364694465614330540noreply@blogger.comtag:blogger.com,1999:blog-7806136543904112143.post-49462520750057218412012-07-28T16:24:21.374-05:002012-07-28T16:24:21.374-05:00CKMIII -- I always enjoy your posts. Thanks.
Be...CKMIII -- I always enjoy your posts. Thanks. <br />Being picky, I would argue that it is not the "markets" that keep driving down the interest rates . . . it is the Fed. Without Fed intervention (excess money creation), the markets would have U.S. interest rates racing the Italians, no?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7806136543904112143.post-66920453887670286832012-07-28T11:05:00.866-05:002012-07-28T11:05:00.866-05:00Oh dear, "Taking It Easy" started up the...Oh dear, "Taking It Easy" started up the song "April Showers" in my head, as in "Bambi". Watch it on Youtube and see if you get bitten as well!Demetriushttps://www.blogger.com/profile/17198549581667363991noreply@blogger.com