EPT5 Trillion Dollars - Page 6
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dybydx
Canada1764 Posts
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Sadist
United States7308 Posts
The Unemployment rate is 8.9% and its almost impossible to sell a house here without taking big losses. I dunno how bad it is in the rest of the country but here its pretty messed up. | ||
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Milton Friedman
98 Posts
On September 19 2008 05:18 dybydx wrote: once inflation exceeds the overnight rate, the overnight rate ceases to lower lending rates, instead it works in reverse and INCREASE then nominal interest rate. greenspan fucked up imo. Would you mind increasing the last part a bit more? I've always known it as inflation affecting the nominal interest rate, which in turn is what allows the classical dichotomy to hold in the long run. If the federal funds rate is set at a particular level and inflation expectations rise then the ex ante real interest rate falls. The federal funds rate is still the same for that month. Eventually, the nominal interest rate must increase, unless inflation expectations (and inflation) lower and perhaps this is what you are referring to. Then again, are you referring to the LIBOR? But that is linked to the rate at which the Central Bank lends to other banks, besides which increased inflation would lower the real cost of financing. | ||
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Biff The Understudy
France7949 Posts
On September 18 2008 08:43 thoraxe wrote: Don't worry, Bill Gates will save us. lulz | ||
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dybydx
Canada1764 Posts
On September 19 2008 06:30 Milton Friedman wrote: Would you mind increasing the last part a bit more? I've always known it as inflation affecting the nominal interest rate, which in turn is what allows the classical dichotomy to hold in the long run. If the federal funds rate is set at a particular level and inflation expectations rise then the ex ante real interest rate falls. The federal funds rate is still the same for that month. Eventually, the nominal interest rate must increase, unless inflation expectations (and inflation) lower and perhaps this is what you are referring to. Then again, are you referring to the LIBOR? But that is linked to the rate at which the Central Bank lends to other banks, besides which increased inflation would lower the real cost of financing. lemme give u a hypothetica scenario... lets assume right now that inflation is 5% and overnight rate is is 10%, prime interest rate is at 15% (prime is always above the overnight rate). the fed has an opportunity to reduce the overnight rate to 5%. knowing this, banks will borrow money from the fed at 5% and loan it out at 10% and still make a profit, thus reducing prime to 10%. businesses see the interest went down (from 15 to 10) will start borrowing more money to finance growth. the economy will become stronger. however, after a disaster (ie 9/11), Fed was scared the US econ will collapse, so he lowered the overnight rate to 1%, and Prime came down to 6%. business will borrow even MORE money to continue growth. however, growth opportunities are limited (ie increased demand for construction will cause increase in material costs, so profit eventually falls). eventually, with the interest rate low enuf, the business will borrow money faster than real growth in GDP. thus inflation occurs and assume it raises to 10%. now, assume the fed keeps the overnight rate at 1%. the bank will continue to borrow money from fed at 1%, but because inflation is at 10%, to make a profit, the prime rate will have to be at least 11% (10% to cover inflation + 1% to cover interest paid to the Fed) for the bank to make a return. Thus, when the overnight rate is below inflation for a long enuf time, it works in reverse to drive the interest rate up. | ||
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gussy
Australia19 Posts
So im going to go with no, he didnt fuck up, he did what was necessary. Hindsight always makes things easier. | ||
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gchan
United States654 Posts
On September 19 2008 06:12 Mindcrime wrote: huh? You're ignoring the economic prosperity of the twenties and getting the cause of the Great Depression wrong. The Roaring Twenties largely did not happen in Europe. Most European countries in the 1920s were still going through political instability, massive inflation, and rising unemployment (despite the large male population losses in WW1). And there was more than one cause of the Great Depression--monetary policy was one of them. Although I'd argue moreso monetary policy prolonged it. | ||
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dybydx
Canada1764 Posts
On September 19 2008 07:37 gussy wrote: the reason the fed lowers interest rates is exactly to promote investment, so as to increase aggregate expenditure (following a loose keynesian model). The fed were probably scared following 911 that the US economy would seize up as people began to save more (an effect which greatly decreases short term output). Maybe this was justified, maybe it wasn't, i haven't got the figures. Clearly to anyone at the time the risk of US going heavily down was pretty realisitic (it certainly shed a crapload), and greenspan (if that was the fed chair at the time, i cant remember) probably had access to a whole lot of models and data that we don't, and he knows a shitload more than we do. So im going to go with no, he didnt fuck up, he did what was necessary. Hindsight always makes things easier. the keynesian model states that yes, lowering interest DOES promote investment, however, there exist such thing as over investment. up to a certain point you get diseconomies of scale. u will still get some growth, but at the cost of massive inflation he did fuck up and he realized it too. as i have demonstrated above, and greenspan personally recognized the danger of inflation as the reason why the feds tried to pump the rates up after 2003. he did it precisely to combat inflation. what he wasnt aware of was how late it was. yes hindsight is 20/20, but his got paid to obtain this 20/20 vision, its stated in his job description. =) | ||
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Ecael
United States6703 Posts
EDIT - That kind of statement about the abilities expected of a Fed chairman is completely bullshit, even if in jest. Hindsight evaluates a problem and gives you the 'proper' answer given the greater amount of information that you have. To demand that of an on-date decision that is pressured by time is nothing short of idiocy. | ||
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bubblegumbo
Taiwan1296 Posts
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dybydx
Canada1764 Posts
changing interest rate usually take 1-2 yrs for it to have an impact on inflation, so by the time you see inflation start to go up, its already late. basically hes the weather forecast of the economy. he saw it comming. | ||
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Ecael
United States6703 Posts
On September 19 2008 06:54 dybydx wrote: lemme give u a hypothetica scenario... lets assume right now that inflation is 5% and overnight rate is is 10%, prime interest rate is at 15% (prime is always above the overnight rate). the fed has an opportunity to reduce the overnight rate to 5%. knowing this, banks will borrow money from the fed at 5% and loan it out at 10% and still make a profit, thus reducing prime to 10%. businesses see the interest went down (from 15 to 10) will start borrowing more money to finance growth. the economy will become stronger. however, after a disaster (ie 9/11), Fed was scared the US econ will collapse, so he lowered the overnight rate to 1%, and Prime came down to 6%. business will borrow even MORE money to continue growth. however, growth opportunities are limited (ie increased demand for construction will cause increase in material costs, so profit eventually falls). eventually, with the interest rate low enuf, the business will borrow money faster than real growth in GDP. thus inflation occurs and assume it raises to 10%. now, assume the fed keeps the overnight rate at 1%. the bank will continue to borrow money from fed at 1%, but because inflation is at 10%, to make a profit, the prime rate will have to be at least 11% (10% to cover inflation + 1% to cover interest paid to the Fed) for the bank to make a return. Thus, when the overnight rate is below inflation for a long enuf time, it works in reverse to drive the interest rate up. That overgeneralized chain of statements. EDIT - and so Greenspan saw inflation coming, and then what? You forget that economists don't even fully agree on the relation of inflation to growth? Not everyone on the Fed are hawkish in terms of policy toward inflation, as we have seen with recent developments with concerns to inflation. | ||
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GoTuNk!
Chile4591 Posts
On September 18 2008 18:31 kemoryan wrote: When willl people stop letting private institutions manage the monetary system and let a public one do it instead. COMMIE | ||
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kpcrew
Korea (South)1071 Posts
also, lowering interest rates promotes investment by allowing more companies to borrow money to invest. however, this process doesn't necessarily lead to immediate growth as companies also plan for the future with long-term investments (research into new products and such) on topic heres a wall street journal article that can say it way better than i can http://online.wsj.com/article/SB122169431617549947.html | ||
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Milton Friedman
98 Posts
On September 19 2008 06:54 dybydx wrote: lemme give u a hypothetica scenario... lets assume right now that inflation is 5% and overnight rate is is 10%, prime interest rate is at 15% (prime is always above the overnight rate). the fed has an opportunity to reduce the overnight rate to 5%. knowing this, banks will borrow money from the fed at 5% and loan it out at 10% and still make a profit, thus reducing prime to 10%. businesses see the interest went down (from 15 to 10) will start borrowing more money to finance growth. the economy will become stronger. however, after a disaster (ie 9/11), Fed was scared the US econ will collapse, so he lowered the overnight rate to 1%, and Prime came down to 6%. business will borrow even MORE money to continue growth. however, growth opportunities are limited (ie increased demand for construction will cause increase in material costs, so profit eventually falls). eventually, with the interest rate low enuf, the business will borrow money faster than real growth in GDP. thus inflation occurs and assume it raises to 10%. now, assume the fed keeps the overnight rate at 1%. the bank will continue to borrow money from fed at 1%, but because inflation is at 10%, to make a profit, the prime rate will have to be at least 11% (10% to cover inflation + 1% to cover interest paid to the Fed) for the bank to make a return. Thus, when the overnight rate is below inflation for a long enuf time, it works in reverse to drive the interest rate up. I always preferred to look at it from another perspective. A Central Bank cannot have a nominal interest rate anchor. If inflation rises then demand for bonds falls which raises the yield. The basic market mechanism keeps the real interest rate unchanged as classical theory says. | ||
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Ecael
United States6703 Posts
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kemoryan
Spain1506 Posts
On September 19 2008 05:47 mahnini wrote: I'll bet you no one in Congress knows anything about how to run the economy. By public institution, I'm guessing that you mean publicly elected officials. Judging by this thread, however, you can understand why you wouldn't want something as delicate as the nation's economy to be, essentially, dictated by a bunch of retards. Also, can you explain how the fed is working for it's own benefit here? What good is the secret fed stash of a bazillion dollars if the us economy crashes? If I understand you correctly, you're saying, why give the power to manage economy to our representatives... why not better give it to some other dudes we don't really know to whom they serve? Also, you are calling 'retards' the poeple that represent your people... thats says a lot lol. And yes, it's something very delicate because it affects all, but thats precisely the main reason why only an institution that represent a whole nation (government in this case) should be in charge of it. And of course it should be composed by knowledgable people about economics and not a bunch of retards that don't know what they're doing. On September 19 2008 10:11 kpcrew wrote: yes, the fed is a private institution. however, it acts like a public institution in which, when given a choice between benefitting themselves or the public, they almost unswerving choose the path that would help the general public. the chairman does report to the president even though the fed is not a governmental department. http://online.wsj.com/article/SB122169431617549947.html The main stockholders of the fed are the member banks. And they are entirely private institutions. It's obvious that the decissions they make are not entirely aimed to benefit the public (if at all). I mean where's the logic of having an independent institution decide over the monetary system? How do you know their decisions don't actually benefit the coorporations that are built around it (banks) and not the population? | ||
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gussy
Australia19 Posts
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Ecael
United States6703 Posts
EDIT - and our representatives are supposed to be serving us? What is this, The Republic came real? EDIT - The possibility of suing for Fuld's pay, serves him right, hope they get it :p | ||
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dybydx
Canada1764 Posts
mccain needs a brain. | ||
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