Monday, May 9, 2016

Buffet on ZIRP


Wealth inequality on steroids.  Sounds like a good policy????


Billionaire investor Warren Buffett told CNBC on Monday just how important interest rates are to stock investing. "If the government absolutely said interest rates are going to be zero for 50 years, the Dow would be at 100,000," Buffett told "Squawk Box," stressing he was speaking hypothetically. 
The Dow Jones industrial average closed at 17,773 on Friday. In a CNBC interview last week, Buffett also spoke about interest rates. "If you had zero interest rates and you knew you were going to have them forever, stocks should sell at, you know, 100 times earnings or 200 times earnings," he said.



11 comments:

Bob said...

And if inflation were at 0% for 50 years there would still be people running around trying to grow their savings.

Tom Hickey said...

Buffett is assuming cet. par.

ZIRP reduces the cost of leverage and margin in equities would be permanently high,

ONLY IF the regulatory authorities allowed this.

IN the case of ZIRP, the cost of home ownership would be much less and most people would be able to afford the month nut

IF regulatory authorities did not permit banks to increase land rent through credit policy.

Matt Franko said...

This rate is important Tom... imo its a regulatory parameter... best not to treat it sophomoric ie "handle with care..."

https://en.wikipedia.org/wiki/Risk-free_interest_rate

Tom Hickey said...

That's monetarism, Matt. MMT is fiscalist.

1. There is no empirically warranted theory of interest rates to ground a monetarist approach in reality. The effect of interest rates falls differently on creditors and debtors, borrowers and savers, and the network of relationships is such that aggregate consequences are uncertain. Even they were certain the cb technocrats would be picking winners and losers.

2. The cb always chooses the rate, even when it sets the rate to zero.

3. At least some MMT economists recommend setting the rate permanently to zero and using fiscal policy and regulation to target outcomes tightly, something that monetary policy cannot do.

Matt Franko said...

No its not the effect is fiscal policy in the UST Interest Payments line item...

You modify the rate you modify the fiscal flow of interest income...

Where have I looked at any "quantity of money!" ?



Tom Hickey said...

I am defining monetary policy as what the cb does and fiscal policy as what Congress does. I consider anyone who recommends cb policy influence as a "monetarist."

Butt there is an overlap in that monetary policy affects the amount of interest that the government pays, which is fiscal. But I regard doing fiscal through the cb as essentially monetarism, since it chiefly related to monetary policy.

The same distinction can be made between technocracy (cb - monetary policy) and representative democracy (Congress - fiscal policy).

Using interest rates fiscally is technocratic and anti-democratic. Monetary policy is a command system run by a cb. This is the liberal global elites' dream.

"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."
    
— Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (PDF), New York: The Macmillan Company, 1966, Chapter 7, p. 324

Auburn Parks said...

Yet more Matt Franko longing for welfare for the wealthy, foreigners and corporations via increased interest spending. Why would anyone support such a terrible and regressive policy as giving $4 to the wealthy, foreigners, and corporations for every $1 the govt gives to middle and working class savers? Its insanity.

Matt Franko said...

Your numbers are bad Auburn....

Auburn Parks said...

Wrong Matt. I did a whole post on it. Provided all the numbers and broke down the math. YOu are wrong. Its just basic arithmetic. A very small % of TSY CDs are held by the non-wealthy. But you dont care about the data because you are an ideological hack.

TofuNFiatRGood4U said...

Hi Auburn,
do you have the link? Thanks.

Matt Franko said...

Auburn you would have to break down all 19T in ERISA accounts and their derivatives that source didnt do that...

they say "corporate owned" well if the corp owns them in a defined benefit account then its not really "corporate owned"... and then you have banks that own them and use them as a source source of funds to pay deposit interest grandma's CDs, etc...

And as far as ME being an ideologue, hey I'm not the disgraced academic working for the Trump campaign now sitting there jerking off watching my candidate's opponent take my position on "the debt" away from me....