The powerful are pleased we find interest rates boring
Tom Streithorst explains here how interest rates are used to stimulate the economy or cause it to retract if inflation starts. But by setting interests really high the right were able to destroy businesses which caused massive job loss and so unions became less powerful. People were scared of losing their jobs so the didn't fight for more wages and so their pay just stagnated. As the economy grew again the wealthy elite took all the profits but ordinary people lost their spending power, but they got over that for a while by borrowing until they were too far in debt to be able to buy anything once again. The economy has now stalled and even with a near zero interest rates it remains dead. The only answer to this is fiscal, i.e, more government spending, says Tom Streithorst.
Tom Streithorst says that it doesn't take anywhere near as much capital today to start a businesses. He works in film and he says how footage can now be shot on a mobile phone, edited with some software on a PC, and be good enough for commercial use.
Technological advances allow us to produce goods more cheaply, while economic insecurity frightens us into saving more and spending less. The desire to save increases even as the need for investment decreases. These two trends are not likely to reverse. These microscopic interest rates are not an anomaly: they are likely to continue as far as the eye can see. This creates an unprecedented problem for policy makers. If you can’t cut interest rates below zero, how can you stimulate the economy?
Until the financial crisis, economists were convinced they knew how to end recessions. They had so much confidence in the power of monetary policy they thought they could cure any economic slowdown merely by cutting rates. The past eight years of low rates but little growth have shaken that certainty.
The government has two tools with which to influence the economy: monetary policy, the control of interest rates, and fiscal policy, government tax and spending. For most of the past thirty years monetary policy was thought so powerful that fiscal was almost unnecessary. But now monetary policy has reached its limit. The Bank of England knows it. The Federal Reserve knows it. So do most reputable economists. Monetary policy is maxed out. It is time to try something else.
10 comments:
The recent recession was sparked off by excessive and irresponsible borrowing. So what did the authorities do? They cut interest rates so as to encourage more borrowing!
Not even Laurel and Hardy could have thought of that one.
More Orthodox teachings from the IMF's own Christine Lagarde at the G20 to fill your boots:
"If there is no international trade, if there is no cross-border investment, if services, capital, people and goods do not cross borders, then it’s less activity for you, it’s less jobs in whichever country you are headquartered"
If
Trade=0 AND
IntlInvestment=0 AND
Services+Capital+People+Goods <> move across borders
THEN GDP LOWER and Unemployment HIGHER.
This is more of that Economic ideology stuff like Austrian Gold Standard thinking.
In the United States GDP, Trade subtracts 36 billion per month from GDP. Foreign Direct Investment add 12 Billion per month, so gdp is higher if trade is lower and employment likely higher. In real terms the rich who can afford to buy lots of cheap imports and sell cheap imports are much better off when trade is higher. If they want to do trade, lets make a deal! You're going to have to share the booty with the rest of us. Because you repeat over and over that the country is better off, and that it creates more jobs, it doesn't make it so. Cut the taxes and increase the transfer payments to the lower and middle class and we'll give you rich guys more trade. That is how politics should work. These economists try to subvert democracy.
Ryan she's a stochastic, less of those things reduce the cycles so there is less opportunities for the good outcomes to happen...
She says: " less activity for you..." Less activity means less of any positive random outcomes .... Darwin at work again....
This is how these people think... It's how they have been trained to think.....
Ryan,
Bush 2 at the start of the GWOT: "we're going to war... go shopping..."
He thinks that the increased cycles from all the shopping will generate more "money!" in the form of taxes so they can pay for the war...
Same thinking as Legarde here...
"Cut the taxes and increase the transfer payments "
Deterministic statement there.... they are stochastics so they dont understand what you are saying here...
"dynamic stochastic blah blah..."
ACATIS Konferenz 2016, Mr. Koo, Surviving in the Intellectually Bankrupt Monetary Policy Environment
Mr Koo apparently believes in "loanable funds" but this talk is still pretty instructive.
The world we live in today, with few raises and even less job security originated with the rate hikes of the early 1980s. (from the article)
He’s got his history wrong. The rate hikes were happening in the late 70s because of (1) Volker, the fucking idiot, thought controlling the money supply would lower inflation, and (2) the oil crisis. It was the cost-push inflation from the 10X rise in oil prices, and its effect on the cost of everything in the economy. The Fed Funds rate in March 1980 was 20%, highest in the 20th C. Reagan was NOT in office. Jimmy Carter’s 1978 deregulation of natural gas hadn’t kicked in because it took three years for the nation’s power plants to retool.
The value of any asset whether an apartment block or a steel mill or a T Bill or a piece of machinery is the value of the cash flows that asset will generate, from now until the end of time.
You cannot conflate a T-Bill/Note/Bond with the asset price of an apartment block, steel mill, or piece of machinery. The capital value of the latter three can fall; they can become worthless. The former cannot. It is guaranteed by the full faith and credit of the US federal government.
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