An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
A change in the FFR would only have an effect on price level to the degree it affects demand. The reason it could have a deflationary bias rather than the predicted inflationary one is reduction of interest income that could affect spending. On the other hand lower rates encourage investment borrowing. This would probably get translated through the housing channel in terms of lower mortgage rates.
But there are so many potential factors involved, it's probably impossible to tell independently of context.
The MMT point is just one factor and it's difficult to weight it out of context.
Actually, one of the reasons that WM recommends permanent low rates is to encourage investment. The lower interest pay out would tend to undercut inflation, too.
WM acknowledges that low rates could stimulated speculation in assets and he says that that this is best handled by regulating lending so as to prevent imprudent lending against collateral.
9 comments:
And this means exactly what?
https://en.wikipedia.org/wiki/Source–sink_dynamics
And here:
https://en.wikipedia.org/wiki/Current_sources_and_sinks
Are you saying these flows or lack thereof if that be the case will lead directly to an economic decline? What is your primary point?
Mal, Status quo +/- .... ie "muddle thru"... rsp,
Got it. Thanks.
Still might be a good idea to look over the two links.... ;)
A change in the FFR would only have an effect on price level to the degree it affects demand. The reason it could have a deflationary bias rather than the predicted inflationary one is reduction of interest income that could affect spending. On the other hand lower rates encourage investment borrowing. This would probably get translated through the housing channel in terms of lower mortgage rates.
But there are so many potential factors involved, it's probably impossible to tell independently of context.
The MMT point is just one factor and it's difficult to weight it out of context.
Actually, one of the reasons that WM recommends permanent low rates is to encourage investment. The lower interest pay out would tend to undercut inflation, too.
WM acknowledges that low rates could stimulated speculation in assets and he says that that this is best handled by regulating lending so as to prevent imprudent lending against collateral.
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