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Markets do set interest rates. The Fed only sets very short term (overnight) rates at which banks can borrow money from the Fed. Things like mortgage rates are tied to longer term US Treasuries (usually 15 years) and car loans tend to follow shorter term Treasuries (five years). The rates for US Treasuries are determined by the market via auctions where buyers make offers on what the are willing to pay to buy them for- supply and demand. When the demand for Treasuries is high, the price tends to be high and the interest rate the pay lower. The Fed did try to target such rates when they were purchasing US Treasuries but stopped that in 2014.
How did you arrive at a 20%- 25% figure (and what interest rates are you talking about- short term, long term, mortgages, savings accounts)? There is a wide spectrum of interest rates. Thank you for your input.
Last edited by Zippyjuan; 08-22-2017 at 07:13 PM.
Never attempt to teach a pig to sing; it wastes your time and annoys the pig.
Robert Heinlein
Give a man an inch and right away he thinks he's a ruler
Groucho Marx
I love mankind…it’s people I can’t stand.
Linus, from the Peanuts comic
You cannot have liberty without morality and morality without faith
Alexis de Torqueville
Those who fail to learn from the past are condemned to repeat it.
Those who learn from the past are condemned to watch everybody else repeat it
A Zero Hedge comment
No, banks don't borrow money from the Fed to buy T-bills or any other investments. Banks look weak when they have to borrow money from the Fed so they don't unless they have to (Fed loans are only supposed to be over-night anyways). Current outstanding loans from the Fed to member banks stands at $166 million (not $billion). They do sometimes borrow to cover cash flows when they have to balance their reserve requirements (if loans get too large relative to their deposits) https://fred.stlouisfed.org/series/BORROW
Never attempt to teach a pig to sing; it wastes your time and annoys the pig.
Robert Heinlein
Give a man an inch and right away he thinks he's a ruler
Groucho Marx
I love mankind…it’s people I can’t stand.
Linus, from the Peanuts comic
You cannot have liberty without morality and morality without faith
Alexis de Torqueville
Those who fail to learn from the past are condemned to repeat it.
Those who learn from the past are condemned to watch everybody else repeat it
A Zero Hedge comment
Never attempt to teach a pig to sing; it wastes your time and annoys the pig.
Robert Heinlein
Give a man an inch and right away he thinks he's a ruler
Groucho Marx
I love mankind…it’s people I can’t stand.
Linus, from the Peanuts comic
You cannot have liberty without morality and morality without faith
Alexis de Torqueville
Those who fail to learn from the past are condemned to repeat it.
Those who learn from the past are condemned to watch everybody else repeat it
A Zero Hedge comment
Come on, you know that Zippyjuan(tm) uses very particularly chosen words to create distinctions without differences. Sure, the Fed itself doesn't loan money generally (except for trillions to overseas banks and corporations that aren't divulged without legislation, that pesky FOMC secrecy thing). The member banks that make up the Federal Reserve System do, however, "loan" money.
"Let it not be said that we did nothing."-Ron Paul
"We have set them on the hobby-horse of an idea about the absorption of individuality by the symbolic unit of COLLECTIVISM. They have never yet and they never will have the sense to reflect that this hobby-horse is a manifest violation of the most important law of nature, which has established from the very creation of the world one unit unlike another and precisely for the purpose of instituting individuality."- A Quote From Some Old Book
I can't speak for Zippy and how he approaches the issue of central banking, but from my point of view I think that it's important to understand how the system works. There's entirely too much misinformation and flat out myth out there regarding how the fed and the American banking system as a whole operates. In my opinion, this is counterproductive, as it tends to distract from the real argument regarding fiscal policy, just like what happened in this thread.
As I'm sure you know, the member banks do loan using money that is produced by the fed, but that money is not loaned to them, it's produced when the fed purchases assets from them.
Speaking of debt ceiling, Trump said earlier that he will shut down the government over the Wall issue.
"Let it not be said that we did nothing."-Ron Paul
"We have set them on the hobby-horse of an idea about the absorption of individuality by the symbolic unit of COLLECTIVISM. They have never yet and they never will have the sense to reflect that this hobby-horse is a manifest violation of the most important law of nature, which has established from the very creation of the world one unit unlike another and precisely for the purpose of instituting individuality."- A Quote From Some Old Book
They'll quarrel and debate and say 'mean' things to each other until the very last second when a deal has been met, as always. These folks don't have the stones to let the government shut down again.
Buying trillions of dollars of an asset doesn't affect its price? Amazing!
Is that magic generally applicable, or just when the Fed's the buyer?
Having a central bank allows them to borrow more cheaply, and hence encourages more borrowing than there'd otherwise be.
It's impossible to know what the price of anything (including money) should be, which is precisely why markets are superior to central planning. It's certain that interest rates would be higher absent the Fed's activities, since the only effect of those activities is to suppress interest rates. Nothing they do encourages interest rates to be higher than they otherwise would be. How much higher rates would be absent the Fed is impossible to say. In the same way, if the state were buying millions of tons of corn every year, we could say that corn prices are higher than they ought to be, though we don't know exactly what they ought to be.
Money =/= savings
Savings = deferred consumption
By not building that house, and saving that money instead (whether one puts it in a bank, buys an equity share in a company, puts in under the mattress, or sets it on fire) the resources which otherwise would have been consumed building the house are now available for other purposes, such as investment in capital goods, which will ultimately increase total output and raise standards of living. Economic growth requires deferred consumption (savings); a society which consumes everything it produces will regress, as it consumes capital, until it hits subsistence. Money creation discourages savings via lower interest rates, and thus retards capital accumulation and economic growth.
Now, on the other hand, money creation is sometimes called "forced savings," in the sense that it redistributes resources (via Cantillon effects) to the earlier recipients of the new money (usually large corporations), from the later recipients (everyone else). In other words, the later recipients of the new money are forced to defer consumption, so that the resources which they otherwise would have consumed can be redirected toward the early recipients of the new money. It's true that this is investment: this can increase the supply of capital goods, etc. But economic growth isn't just a matter of taking savings and investing them in anything. It's not enough that people defer consumption; the resources thus freed must be invested in productive enterprises (if the labor, wood, etc, saved from not building the house go into digging ditches and filling them in, nothing is gained). And so the problem with "forced saving" via money creation is that it distributes savings in a relatively inefficient manner,; the market distributes savings to enterprises in proportion to their productivity; money creation causes savings to be distributed to enterprises in proportion to their proximity to the money-tap, which, in practice, usually means their political connections. Imagine the government directly taxing people and then handing the proceeds to politically connected companies: more or less the same thing.
If there is a decline in the production of consumer goods, because people are choosing to consume less, the prices of labor, land, and other resources drop until they reach a point at which it would be profitable for the producers of capital goods to employ them. In money term, interest rates fall and companies borrow more, to expand future production. Again, saving isn't the cause of depression; it's the reason there's any growth at all.What would happen if people stopped spending? How would that impact business? Would they increase borrowing (which would cost them much, much more money) to expand output capacity? If people stopped buying, demand for their goods would plummet and they would be cutting- not expanding- production. They would be laying off workers causing high unemployment (those 20% interest rates in 1980 were quickly followed by 10% unemployment).
Last edited by r3volution 3.0; 08-23-2017 at 01:54 PM.
I've been warning about an imminent shutdown for a while on RPF.
I still 99% think the shutdown will happen but because of the bigger economic reset/reordering under way, petrodollar death. The Trump Wall $#@! is just a smoke screen for bigger banker agendas. The important part will be to pay attention to what Congress does during the uproar and confusion since history shows they change things when no one is looking (see Federal Reserve Act passage). Gonna get interestin' very, very soon methinks. A whole lotta crap rolling down hill at once...
"Let it not be said that we did nothing."-Ron Paul
"We have set them on the hobby-horse of an idea about the absorption of individuality by the symbolic unit of COLLECTIVISM. They have never yet and they never will have the sense to reflect that this hobby-horse is a manifest violation of the most important law of nature, which has established from the very creation of the world one unit unlike another and precisely for the purpose of instituting individuality."- A Quote From Some Old Book
Disrupt, Deny, Deflate. Read the RPF trolls' playbook here (post #3): http://www.ronpaulforums.com/showthr...eptive-members
Last edited by NorthCarolinaLiberty; 08-23-2017 at 05:34 PM.
Disrupt, Deny, Deflate. Read the RPF trolls' playbook here (post #3): http://www.ronpaulforums.com/showthr...eptive-members
The power to create money is also the power to affect interest rates, as the interest rate is just a reflection of the supply and demand for money.
Also, generally speaking, independent central banks create less inflation than those that are directly part of the government. If it were part of the Treasury department or whatever, it would need to be completely insulated from politics and politicians, or else the "fix" might be worse than the current situation.
Disrupt, Deny, Deflate. Read the RPF trolls' playbook here (post #3): http://www.ronpaulforums.com/showthr...eptive-members
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