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View Full Version : Was Ron Paul wrong, are rates being pushed artificially high, not low?




Madison320
11-04-2018, 05:56 PM
I'm having a discussion over in the economics forum and the guy I'm arguing with claims Ron Paul has no clue about the monetary system and that the Fed has actually been pushing rates artificially HIGH these last 10 years. Other than me he's gone unchallenged, which is a little disturbing. This is a Ron Paul forum, right? And no it's not Zippy or TheCount.

Grandmastersexsay
11-04-2018, 06:47 PM
If there's inflation, they aren't artificially high, they're artificially low. It's that simple, or should be. Unfortunately there is no guiding principles or legislation for raising or lowering interest rates. Is it to spur the economy or curb inflation? It really just depends on how a bunch of bankers feel when they meet every 7 weeks.

Your question requires more context. Ron would say that interest rates are artificially low at the expense of the value of the dollar, inferring the goal of the federal reserve should be to starve off theft by inflation. Someone could also state that rates are being kept artificially low to slow down the economy, inferring it is the Fed's job to stimulate the ecconomy. Both are valid points that spur the real question; is it the federal reserve's job to guard against inflation or drive the ecconomy?

Swordsmyth
11-04-2018, 07:00 PM
I agree with you, I just don't think it is worth arguing about complex technicalities when the easy answer is to end the Fed and let the market sort things out.

Krugminator2
11-04-2018, 07:12 PM
I'm having a discussion over in the economics forum and the guy I'm arguing with claims Ron Paul has no clue about the monetary system and that the Fed has actually been pushing rates artificially HIGH these last 10 years. Other than me he's gone unchallenged, which is a little disturbing. This is a Ron Paul forum, right? And no it's not Zippy or TheCount.

Not only did I not say the Fed was pushing rates artificially high, I explicitly responded to your post clarifying your initial wrong interpretation of what I said. Zero percent is a price floor. Rates should have been lower. That isn't the same thing as saying the Fed was pushing rates up.

Ron Paul has been wrong about everything the last 10 years. No inflation. No skyrocketing gold prices. No stock market crash. No currency crisis. No Treasury bond bubble. All things he claimed. We live in the future. We can see Ron, Peter Schiff were wrong about EVERYTHING. There is nothing wrong with being wrong. There is a lot wrong about staying wrong.

My view is the free market view. It is the view that any free market person who wonders why the Mises people were so horribly wrong would ultimately find themselves with after a little bit of investigating.

oyarde
11-04-2018, 07:28 PM
Everyone can pretend all they like , but at this point the debt is so high the Fed has a vested interest in ensuring things are at a comfortable level for big govt

ThePaleoLibertarian
11-04-2018, 07:35 PM
I've come to the belief that the Austrians are excellent on microeconomics but less good on macro. In fact, I'm not sure anyone has a really good macroeconomic theory. It's good to keep an open mind about these things.

Grandmastersexsay
11-04-2018, 07:49 PM
Not only did I not say the Fed was pushing rates artificially high, I explicitly responded to your post clarifying your initial wrong interpretation of what I said. Zero percent is a price floor. Rates should have been lower. That isn't the same thing as saying the Fed was pushing rates up.

Ron Paul has been wrong about everything the last 10 years. No inflation. No skyrocketing gold prices. No stock market crash. No currency crisis. No Treasury bond bubble. All things he claimed. We live in the future. We can see Ron, Peter Schiff were wrong about EVERYTHING. There is nothing wrong with being wrong. There is a lot wrong about staying wrong.

My view is the free market view. It is the view that any free market person who wonders why the Mises people were so horribly wrong would ultimately find themselves with after a little bit of investigating.

To be fair he was talking in generational time. He never said it was coming tomorrow.

Pretty sure Paul correctly predicted the housing bubble.

Madison320
11-04-2018, 09:11 PM
Not only did I not say the Fed was pushing rates artificially high, I explicitly responded to your post clarifying your initial wrong interpretation of what I said. Zero percent is a price floor. Rates should have been lower. That isn't the same thing as saying the Fed was pushing rates up.

Ron Paul has been wrong about everything the last 10 years. No inflation. No skyrocketing gold prices. No stock market crash. No currency crisis. No Treasury bond bubble. All things he claimed. We live in the future. We can see Ron, Peter Schiff were wrong about EVERYTHING. There is nothing wrong with being wrong. There is a lot wrong about staying wrong.

My view is the free market view. It is the view that any free market person who wonders why the Mises people were so horribly wrong would ultimately find themselves with after a little bit of investigating.


Maybe it was a different Krugminator2?


Rates have been been suppressed since 2008 and I don't see how that's even debatable. Remember it's not just the Fed funds rate that was set to 0%. It was QE and guaranteed loans and demand for loans from other govts and central banks. And we've had an explosion of debt and asset prices. Do you think it was a booming economy that sent the DOW from 7K to 25K?


You are right. It isn't debatable. Rates were artificially high and that is true beyond a reasonable doubt. All you need is supply and demand graph to realize this.

Madison320
11-04-2018, 09:16 PM
I agree with you, I just don't think it is worth arguing about complex technicalities when the easy answer is to end the Fed and let the market sort things out.

If you really agreed with me (and Ron Paul) you wouldn't be posting the "good economic news caused be Trump" of the week. Because you'd know you'd have to take it all back when the bubble pops.

Swordsmyth
11-04-2018, 09:17 PM
If you really agreed with me (and Ron Paul) you wouldn't be posting the "good economic news caused be Trump" of the week. Because you'd know you'd have to take it all back when the bubble pops.
Trump has done some good things and they are helping.

Krugminator2
11-04-2018, 09:18 PM
Maybe it was a different Krugminator2?

No. Same person.

What I said is correct. What I said is not the Fed pushing rates up. It is the zero lower bound preventing rates from falling to a market clearing level.

Madison320
11-04-2018, 09:19 PM
To be fair he was talking in generational time. He never said it was coming tomorrow.

Pretty sure Paul correctly predicted the housing bubble.

I agree and the bubble that Ron Paul has been warning about is caused by debt and that keeps growing. The bubble clearly exists. Healthy economies don't have 22 trillion in govt debt and run 1+ trillion a year deficits. And that doesn't even cover local state and private debt which is just as out of control.

Madison320
11-04-2018, 09:30 PM
No. Same person.

What I said is correct. What I said is not the Fed pushing rates up. It is the zero lower bound preventing rates from falling to a market clearing level.

So now you are saying that banks WOULD loan money at a negative rate? Why would they do that?

Zippyjuan
11-04-2018, 09:39 PM
To be fair he was talking in generational time. He never said it was coming tomorrow.

Pretty sure Paul correctly predicted the housing bubble.

Ron Paul in 2014 said things were "as bad as 2008 and 2009" and were about to crash.

https://www.cnbc.com/2014/07/29/ron-paul-stocks-are-in-a-bubble-and-will-crash.html


“One thing we have to remember is that when you get false information from artificially low interest rates, that mistakes are made, they’re inevitable. You make mistakes even when you have market rates of interest. But when the market rate of interest is so low for everybody, there’s a lot of mistakes, and that’s why you have the bubbles, and that’s why you go through the catastrophe we had in ’08 and ‘09, and I think the conditions are every bit as bad as they were in ‘08 and ’09.”

So if Paul is reminded of 2008 and 2009, does he think the market will crash once again?

“Well, yes. The market has to correct, and who’s going to call it a crash until it happens? We’re in for a major correction, I think. I think we’re very, very vulnerable,” he said. “When it’s artificial, it’s distorted, it’s vulnerable, and it’s just looking for the correction.”

Stocks at the time (as measured by the Dow Jones Industrial Index) were just under 17,000. Today about 25,000 or up almost 50% from then. The market hit bottom in the end of February 2009 with a Dow of about 7,000.

2015. https://www.cnbc.com/2015/06/19/ron-paul-stock-market-day-of-reckoning-is-near.html


Ron Paul: Stock market ‘day of reckoning’ is near

“I think [the crash] is going to be much greater [than 10 percent] and it will probably go a lot lower than people say it should,” said Paul. “I don’t think it’s going to be just a correction.”

Besides his recent call for a 50% drop in stock prices, he made the same claim last year too. August, 2017:

https://www.marketwatch.com/story/ron-paul-sees-stocks-chopped-in-half-within-a-year-but-he-wont-blame-trump-2017-08-21


Ron Paul: Stocks may get chopped in half within a year, but it won’t be Trump’s fault

Last month, libertarian and multiple campaigner for president Ron Paul made headlines with his gloomy prediction that the stock market, plagued by an overrated recovery for the U.S. economy, could plunge 25% by October.

Obviously, not much in the way of positive news has come along since then to change his views. In fact, he just took his bearish outlook up a few notches.

“A 50% pullback is conceivable,” he told CNBC, earning our call of the day. “I don’t believe it’s 10 years off. I don’t even believe it’s a year off.”

Peter Schiff has been calling for a crash every year since 2009. And hyperinflation and $5000 gold.

acptulsa
11-04-2018, 09:41 PM
Ron Paul has been wrong about everything the last 10 years. No inflation. No skyrocketing gold prices. No stock market crash. No currency crisis. No Treasury bond bubble. All things he claimed. We live in the future. We can see Ron, Peter Schiff were wrong about EVERYTHING. There is nothing wrong with being wrong. There is a lot wrong about staying wrong.

Yes, anyone who assumed that was a short-term forecast took a bath. But I don't think he intended it as a near term speculation guide.

He wasn't wrong until the fat lady sings.

Krugminator2
11-04-2018, 10:07 PM
So now you are saying that banks WOULD loan money at a negative rate? Why would they do that?

Yeah. I assume you are talking about overnight lending to each other. They have in Europe.

They wouldn't do mortgages at negative rates. They would charge depositors a negative though.

Madison320
11-05-2018, 09:45 AM
Yeah. I assume you are talking about overnight lending to each other. They have in Europe.

They wouldn't do mortgages at negative rates. They would charge depositors a negative though.

I'm talking about what that guy wrote, "It is the zero lower bound preventing rates from falling to a market clearing level." I'm assuming that's a fancy way of saying that he thinks the free market rate of interest is negative. And my response is that that makes no sense because no one would loan money at a negative rate. Therefore the existence of negative rates is proof that they were pushed artificially low by something.

Actually I thought of a case where rates would be negative. If price inflation was negative. But that's not the case here. Prices have been rising the whole time since 2008. Which makes the existence of negative rates even more whacky.

The Gold Standard
11-05-2018, 01:49 PM
If interest rates were ever supposed to be negative, the Fed would have had absolutely no reason for QE. In fact there would have been so much loanable money sitting there waiting, the U.S. government would have been paid a premium for borrowing money. Why on Earth would the Fed have added $3 trillion to bank reserves since 2008 if banks already had so much loanable money available that they had to pay people to borrow it?

Because the current bubble hasn't burst yet, people that don't understand economic fundamentals can shout out that the Austrians were wrong all they want. I don't really care. But to say that interest rates were artificially high is ridiculous.

Madison320
11-05-2018, 03:24 PM
If interest rates were ever supposed to be negative, the Fed would have had absolutely no reason for QE. In fact there would have been so much loanable money sitting there waiting, the U.S. government would have been paid a premium for borrowing money. Why on Earth would the Fed have added $3 trillion to bank reserves since 2008 if banks already had so much loanable money available that they had to pay people to borrow it?

Because the current bubble hasn't burst yet, people that don't understand economic fundamentals can shout out that the Austrians were wrong all they want. I don't really care. But to say that interest rates were artificially high is ridiculous.

That's a good point. The author of the article Krugminator referred to thought that because of the crash in 2008, rates naturally dropped to negative. I have a question about this. Do rates normally drop during a banking crisis like in 2008? I'm wondering if the opposite would occur, that rates would actually go up because the banks have no money to loan out (less supply). I'm not sure how the demand side would effect rates. Would there be more or less demand for loans after a crash?

Either way the actions of the Fed and the govt are obviously designed to lower rates. That part is easy. Like you said, giving the banks 3 trillion to loan out wasn't designed to RAISE rates.

The Gold Standard
11-05-2018, 09:56 PM
That's a good point. The author of the article Krugminator referred to thought that because of the crash in 2008, rates naturally dropped to negative. I have a question about this. Do rates normally drop during a banking crisis like in 2008? I'm wondering if the opposite would occur, that rates would actually go up because the banks have no money to loan out (less supply). I'm not sure how the demand side would effect rates. Would there be more or less demand for loans after a crash?

Either way the actions of the Fed and the govt are obviously designed to lower rates. That part is easy. Like you said, giving the banks 3 trillion to loan out wasn't designed to RAISE rates.

It's impossible to know exactly what rates would have looked like if the market set them in 2008. You would have had most of the biggest banks failing, dropping supply along with demand. But along with reduced private sector demand, you would have had increased demand by government, so in that scenario, I would guess that rates would spike.

Now, with the bailouts and existence of the Fed, you had no bank failures, along with reduced demand, so rates were very low. But that's not what the rate would naturally be. Left to nature, Citi and Bank of America and others would have closed their doors and the remaining banks would have had the government and some private actors competing to borrow from them.

r3volution 3.0
11-05-2018, 10:23 PM
The Fed can affect rates by either:

(a) buying securities (with newly created money), thereby lowering rates

or, (b) selling securities, destroying the proceeds, thereby raising rates.

For years, really forever, the Fed has been pursuing the first option.

The Fed could in principle raise interest rates above the market rate, by only very temporarily; they can't print securities.

...and, in any event, they have no incentive whatsoever to do this.

In reality, the Fed does not "raise interest rates." The Fed allows interest rates to rise (to a higher but still below-market level).

Madison320
11-06-2018, 09:39 AM
The Fed can affect rates by either:

(a) buying securities (with newly created money), thereby lowering rates

or, (b) selling securities, destroying the proceeds, thereby raising rates.

For years, really forever, the Fed has been pursuing the first option.

The Fed could in principle raise interest rates above the market rate, by only very temporarily; they can't print securities.

...and, in any event, they have no incentive whatsoever to do this.

In reality, the Fed does not "raise interest rates." The Fed allows interest rates to rise (to a higher but still below-market level).

That reminds me about something I've wondered about. When the Fed raised the fund rate to something like 18% back in the early 1980s, did that do anything? Why would anyone borrow at 18% if they could borrow from somewhere else at a lower rate? For example if they raised the rate to 100%, that would be the equivalent of not even having a fed funds. So it would have no effect on rates. In other words the only way the fed funds could have any effect on rates is if the rate was lower than the free market rate. At least that would be my guess.

Zippyjuan
11-06-2018, 12:59 PM
That reminds me about something I've wondered about. When the Fed raised the fund rate to something like 18% back in the early 1980s, did that do anything? Why would anyone borrow at 18% if they could borrow from somewhere else at a lower rate? For example if they raised the rate to 100%, that would be the equivalent of not even having a fed funds. So it would have no effect on rates. In other words the only way the fed funds could have any effect on rates is if the rate was lower than the free market rate. At least that would be my guess.

Selected interest rates from 1980: https://www.infoplease.com/business-finance/us-economy-and-federal-budget/money-market-interest-rates-and-mortgage-rates-1980

Fed Funds Rate: 13.35%

Fed Discount Rate: 11.77%

Three Month US Treasury Notes: 11.39%


30 year mortgage rates were 14%- the peaked in October 1981 at 18.45%. http://www.freddiemac.com/pmms/pmms30.html

Despite those rates, people still borrowed money. Houses were still sold.

Madison320
11-06-2018, 02:55 PM
If interest rates were ever supposed to be negative, the Fed would have had absolutely no reason for QE. In fact there would have been so much loanable money sitting there waiting, the U.S. government would have been paid a premium for borrowing money. Why on Earth would the Fed have added $3 trillion to bank reserves since 2008 if banks already had so much loanable money available that they had to pay people to borrow it?

Because the current bubble hasn't burst yet, people that don't understand economic fundamentals can shout out that the Austrians were wrong all they want. I don't really care. But to say that interest rates were artificially high is ridiculous.

I thought this was pretty funny:


Increasing reserves has zero effect on interest rates. If rates went up, there were other factors at work.

r3volution 3.0
11-07-2018, 07:32 PM
That reminds me about something I've wondered about. When the Fed raised the fund rate to something like 18% back in the early 1980s, did that do anything? Why would anyone borrow at 18% if they could borrow from somewhere else at a lower rate? For example if they raised the rate to 100%, that would be the equivalent of not even having a fed funds. So it would have no effect on rates. In other words the only way the fed funds could have any effect on rates is if the rate was lower than the free market rate. At least that would be my guess.

Precisely, at least in the long run.

Short term, the Fed (even pre-QE) always has some securities which they can sell (or threaten to sell).

But, long run, they can't print securities, so their threat to sell (unlike their threat to buy) has limited credibility.