what incentive is there for the fed to raise interest rates?

[georgiaboy]

Inflation.

that is, raising rates is a way to ward against inflation.

[torchbearer]

Production drives the cost of living down (products are more affordable, driving real wages up) - the workers producing see the value of their labor rise, which in turn drives demand up and makes savings (future demand) even more viable.

Producing for the sake of producing (say cars...**Ahem, GM**) is malinvestment, but there are a few staples that no matter what the conditions are - can create a foundation for extras...like cars. Think; food, water delivery systems, health care. These are in demand to a nearly infinite level. As these necessities become satisfied (or nearly), spare capacity can be rerouted towards DESIRES and COMFORTS.

Most MODERN demand in the market place is nothing short of the product of overwhelming PRODUCTION of necessities. Who cares about X jobs, X products if REAL capital is difficult to come by because political/Keynesian/governomics is constantly syphoning the real wealth away through taxation and inflation towards their Buddy Corporations...Their models seem OK on paper - but in the real world they are nothing short of catastropic to sustainable and truly productive capital formation.

If demand is scarce (money flows are restricted, credit hard to come by) - it is not a mistake, for example, to turn productive capacties toward farming, more efficient water deliver systems etc - even if on the surface it appears that there may not be sufficient demand. The very production of these necessities is what allows for the demand of other things to begin with. Especially in the modern world where "money" is scarce in a controlled, majority opressive manner. This is thanks to an outright monopoly on 50% of the entire market (currency) and further cemented through oligopolies on credit flows (See; Most Nations Western nations- 3-6 State protected Uber banks).

The Keynesian view of demand and credit is somewhat backwards when it comes to overall efficiency. Spurring demand in the Keynesian sense, is nearly always artifical and ends up propping up Fascist oligarchs who pathetically cling to their failing institutions. In short, their "systems" are imposed, rather then created organically through market forces and REAL demand.

There is not a lack of demand, Zippy - there is a lack of widespread capital formation where the creators of said capital can reap the benefits of their production. On the surface, it appears that you are right - but its not demand that is the problem, its the stiffling of those who actually produce that is the problem. Its difficult to purchase (demand) products when most of your labor is robbed from you.

It's not a lack of demand that is the problem - it's a lack of property rights and and interference with the inherent Soverignty of each individual that is the problem.

Reallocate the fruits of labor to the laborer and the employer - and away from the State...and watch demand skyrocket. Demand is there, it's simply being oppressed.

The "Elite" have arrogantly tied the feet and wings of the Goose laying their Golden Egg.

bravo.

[Zippyjuan]

There is not a lack of demand, Zippy - there is a lack of widespread capital formation where the creators of said capital can reap the benefits of their production. On the surface, it appears that you are right - but its not demand that is the problem, its the stiffling of those who actually produce that is the problem. Its difficult to purchase (demand) products when most of your labor is robbed from you.

It's not a lack of demand that is the problem - it's a lack of property rights and and interference with the inherent Soverignty of each individual that is the problem.

If you have your own business, what will get you to hire more people or to pay the people who work for you more money? Perahps you can go and borrow money to increase your output. Will you? You will if you think people will buy that extra output at a price you can make money from. How do you decide that? You look at your sales and your costs. If you don't see the sales there (weak demand) you aren't going to take on the risk of investing in more production. If your sales are lower than they were a few years ago, you aren't going to be doing much expansion.

[KingRobbStark]

No one can raise or decrease interest rates, they have to naturally fluctuate. The people who controll the FED on the other hand won't benefit from artificially setting the interest rate too high (or to its current natural limit), because that would undermine thier wealth.

[Steven Douglas]

No one can raise or decrease interest rates, they have to naturally fluctuate. The people who control the FED on the other hand won't benefit from artificially setting the interest rate too high (or to its current natural limit), because that would undermine their wealth.

Amen. In reality, they only have incentive to maximize profitability of loans through commercial banks. In other words, "Should we have a lot of loans at a lower interest rate, or fewer loans at a higher interest rate?" But there is a demand curve that applies to credit itself, called Transactions Demand (demand for credit specifically) in Keynesian-speak. And that has gone vertical. But "willingness AND ability" are critical components of both supply and demand. Many are more than "willing" -- desperate even -- to have credit. It's the ability part that is fucking up their demand curve, especially when credit-seekers must convince banks that they will make good on their loans. And that is to bankers who are no longer mesmerized by a housing bubble. But Bernanke (et al) are spinning all of this as "unwillingness" (to spend), rather than unwillingness to lend, a blame that is laid primarily on the doorsteps of consumers. They are convinced that there is still some life blood in those turnips, and will do whatever they can to wring it out.

Lowering interest rates (the price of credit) now does NOTHING to affect supply, and raising it can only decrease demand (forget that it will discourage malinvestment, or monetary rent-seeking behavior on the parts of AAA-rated mega-firms). They exhausted that demand curve in the bubble phase that was already created and fueled by low interest rates, and have already hit rock bottom. But now they are trying to go lower. What they are now trying to do is tap into "speculative demand" (again Keynesian double speak as a subset of Transaction Demand) hoping to kickstart another artificial bubble. At the very least they hope to take advantage of "precautionary demand" (more Keynesian-speak), as they might get people, at the very least, to invest and trade in anything that represents a further hedge against the falling currency value.

But there is ZERO wealth creation involved in any of this wealth redistribution process. And since ALL of this, in the absence of increased interest rates, is ultimately inflationary, what the Fed is really saying to everyone is, "Oh, you consumers WILL work harder, we can promise you that. And you WILL spend more, because it is going to require more that devalued currency "you refuse to spend" for you to simply say that you exist, let alone hang by a micro-economic thread."


AKA THEY FIND YOUR LACK OF FAITH DISTURBING.

[Madison320]

No one can raise or decrease interest rates, they have to naturally fluctuate. The people who controll the FED on the other hand won't benefit from artificially setting the interest rate too high (or to its current natural limit), because that would undermine thier wealth.

I agree that rates should be set by the market but I have a question. If the fed raises rates to a level that is above the market, would that be the same as letting the market set the rate? For example if the fed raised its rate to 50% no one would borrow from them right? You'd borrow from whoever gave you the best rate. If a bank was loaning money at 10% why borrow from the fed at 50%?

[torchbearer]

I agree that rates should be set by the market but I have a question. If the fed raises rates to a level that is above the market, would that be the same as letting the market set the rate? For example if the fed raised its rate to 50% no one would borrow from them right? You'd borrow from whoever gave you the best rate. If a bank was loaning money at 10% why borrow from the fed at 50%?

where do you think the banks are getting their reserves from?
if their next window visit is going to cost them 50%, they will be charging that much ahead of that purchase.

[Madison320]

If you have your own business, what will get you to hire more people or to pay the people who work for you more money? Perahps you can go and borrow money to increase your output. Will you? You will if you think people will buy that extra output at a price you can make money from. How do you decide that? You look at your sales and your costs. If you don't see the sales there (weak demand) you aren't going to take on the risk of investing in more production. If your sales are lower than they were a few years ago, you aren't going to be doing much expansion.

The catch is that if the govt tries to stimulate demand it causes more damage to the business than any benefit from the stimulus.

There's 3 main ways that the government can stimulate demand. Borrowing, printing and taxing. Alll 3 methods cause more damage to the business than benefit. Borrowing increases demand in the short run at the expense of demand in the long run, plus interest. Printing does nothing other than raise prices and screw things up in general. Taxing is like giving your product away for free. Suppose the government takes a million dollars in taxes from your business to give to potential customers. The "best" case scenario is that you are giving your product away for free. That's assuming all of the million dollars gets used to buy products from your business.

I think the best way to see the fallacy of "keynesian demand theory" is to visualize everything in a barter system with no cash. Cash just over complicates the logic. You can't generate demand by taking stuff from a business and expecting it to benefit that same business.

[The Free Hornet]

There's 3 main ways that the government can stimulate demand.

What about deregulating?

How large is the market for $4/hr labor? We don't know and can't tax it.
How about the hemp/marijuanna market? We don't know and can't tax it.
Raw milk? Gas without ethanol? TSA-free travel? Top-loading washers?
Non-ABA approved legal sevices? Non-AMA approved medical services?
Services from people without insurance or workman's comp?
Booze for the under 21 crowd so they learn to drink responsibly?
What if OSHA was let loose on the armed forces instead of private enterprise?

[Paul Or Nothing II]

Increasing production does nothing if there is no demand for the additional goods being produced. Production won't be increased until companies see enough sales to justify it. Savings is good, but if you aren't buying then once again, we lack enough demand to bother producing more. You need both savings and spending- not an excess of either- for a balanced economy. We did go too far into the spending without saving. Saving is also difficult when incomes take the hits they have over the past few years.

Nonsense. Increasing production, that is, increasing supply lowers prices & lower prices increase demand.
America is one of the fattest countries around because people find food cheaply enough because there's enough supply, if production & supply was less, then prices would be higher & consumption would be lower.
Widespread use of automobiles (perhaps too much) was caused by increasing production of cheaper, increasing automobile-production as well as cheaper oil.

Increasing production = lower prices = increasing demand
Less production = higher prices = lower demand

Inflation.

To the point

If you have your own business, what will get you to hire more people or to pay the people who work for you more money? Perahps you can go and borrow money to increase your output. Will you? You will if you think people will buy that extra output at a price you can make money from. How do you decide that? You look at your sales and your costs. If you don't see the sales there (weak demand) you aren't going to take on the risk of investing in more production. If your sales are lower than they were a few years ago, you aren't going to be doing much expansion.

If employers aren't hiring enough & there are too many unemployed then that means there's excess labor-supply.

Again, when supply increases, prices (wages/salaries) MUST fall & that will drive demand for labor & increase production, lower prices & thereby increase demand BUT the problem is that minimum-wage & welfare creates "floor-wages" which isn't allowing price of labor to fall enough, instead unemployed are paid from production/wealth stolen from the productive people; it's a self-perpetuating downward spiral which only ends or at least tempers until enough productive people are sucked dry or they find ways to avoid getting sucked dry of their wealth by the government, unproductive & less productive.