Monday, January 8, 2024

"Medieval doctors drew blood; modern central bankers raise interest rates" — Bethesda 1971

Daily Kos? Yep. At least some of the so-called "left" are waking up?

The quotes is from a recent piece by James K. Galbraith and the post refers to Stephanie Kelton for explanation.

Daily Kos
"Medieval doctors drew blood; modern central bankers raise interest rates"
Bethesda 1971

9 comments:

Matt Franko said...

Democrat circle jerk…

NeilW said...

Raising interest rates cures inflation in the same way that a lobotomy cures depression.

Yes it works. Yes there are lots of scientific peer reviewed papers showing that it works.

But what you're left with is not pretty.

We have a better way of handling inflation that is far more precise, faster acting and without causing permanent irreversible damage. Why are we not using it?

Konrad said...

”We have a better way of handling inflation that is far more precise, faster acting and without causing permanent irreversible damage. Why are we not using it?”

What is the better way of handling inflation?

I suspect that “inflation” is merely the Fed’s cover story for keeping interest rates so high, and that the Fed’s actual reason is to slow global de-dollarization by making Treasury securities more attractive.

Explanation…

The “national debt” is simply the amount of dollars that various parties have deposited into Fed savings accounts by purchasing T-securities. High interest rates boost T-security yields, so that people in the USA and abroad invest their U.S. dollars in U.S. T-securities, rather than convert their dollars into other currencies and invest them elsewhere. A 30-year Treasury bond, for example, keeps U.S. dollars locked up for 30 years. This slows de-dollarization.

T-security yields were $475 billion in fiscal year 2022, and are expected to rise to $1.4 trillion in 2032 and $5.4 trillion by 2053. T-securities are very attractive because their yields are so high, because of the Fed’s high interest rates. Therefore the amount of dollars in Fed savings accounts is now over $34 trillion, and is rising fast.

Again, this is all a Fed attempt to keep U.S. dollars in demand, and thereby offset global de-dollarization.

Naturally politicians and the corporate media outlets pretend that this (non-existent) “debt burden” is a “disaster,” since they lie about EVERYTHING. Doom-saying keeps the peasants calm. When they are told that the “national debt” will double every few months, the peasants quietly hunker down in their little holes and hope to not get hit by an incoming artillery shell. The peasants are further distracted as Republicans and Democrats blame each other for the (non-existent) “national debt crisis.”

It’s all about keeping the masses beneath the heel of financial oligarchs and their servant politicians.

Morons like Nikki Haley say that because of this (non-existent) “crisis,” Medicare and Social Security must be slashed or privatized. Then those same morons turn right around and claim that they never said that. Such idiocy keeps the peasants confused, helpless, and angry with each other -- i.e. under control.

Peter Pan said...

I'm old enough to remember when you could get a term deposit at the bank yielding 16% interest.

Konrad said...

"I'm old enough to remember when you could get a term deposit at the bank yielding 16% interest."

Yes. I remember a time when banks pushed CDs (Certificates of Deposit) to regular customers. Today banks still sell CDs, and they currently yield 5.25-to-5.5% per year. You agree to leave a certain amount of money in an account for a certain amount of time for a certain rate of interest.

Treasury securities too are certificates of deposit. A 30-year bond pays about 4.17% per year.

This money is a loan to the bank, just as regular deposits are loans. T-securities are loans to the Fed. In either case there is a penalty if you withdraw your money early.

Regular bank CDs are insured by the FDIC. Credit union CDs are insured by the National Credit Union Administration. T-securities are insured by the Federal Reserve and US Treasury.

These days, CDs and T-securities are mostly purchased by financial institutions and very rich people. CD yields and Treasury yields are not enough to interest people who live from paycheck to paycheck, but the numbers really add up when we are talking about hundreds of millions of dollars on deposit.

There are 34 trillion dollars on deposit with Fed banks. This is the so-called “national debt.”

Konrad said...

I could add that Treasury securities are especially attractive right now because rich investors have lost much of their trust in regular banks. Since 2001 there have been 566 bank failures in the USA. In 2023 alone there were five major bank failures.

Banks made bets during 15 years of easy money and “quantitative easing,” but they went belly-up when the Fed raised interest rates.

Another problem is that many banks are more concerned about pushing wokery (e.g. purging their straight white male management) than about sound financial policies.

Therefore investors put their money in T-securities.

Hence the $34 trillion "national debt."

mike norman said...

I don't understand all the fuss about rate changes. They're price changes and fiscal operations. This happens all the time through policy. Big deal. So, they raise rates? Government is a net payer of interest. Some win, some lose. It's all a redistribution. Big deal. Let them raise rates. Who cares?

mike norman said...

What's easy money? Taking on debt with low interest rates? I think the easier money is getting free money from the government in the form of interest payments.

Konrad said...

"What's easy money? Taking on debt with low interest rates?"

Yes, while issuing debt at much higher interest rates. Or using near-zero-interest loans to engage in stock buybacks, etc.

"I think the easier money is getting free money from the government in the form of interest payments."

Yes, that has become the easy money now. Hence the Fed's high interest rates, which make the yields on T-securities attractive for very rich people.

As I said, I suspect that the real reason for the Fed's high interest rates in not to "fight inflation," but to slow global de-dollarization. If I am wrong about that, perhaps someone can explain why.