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Raise interest rates to stimulate growth!

Masego
Posts: 4
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7/26/2012 7:43:42 AM
Posted: 4 years ago
There was an interesting idea proposed to me. I understood the intent but the practicality in this climate is not justifiable. The idea was that Bernanke should increase interest rates and the intent would be to somehow force businesses to spend the cheap cash they have been borrowing and are now hoarding. Government has not come to the party, monetary accomodation whilst helpful has shown diminishing returns. Each time easing is used, it benefits the consumer less and less. #longterm
Lordknukle
Posts: 12,788
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7/26/2012 10:47:56 AM
Posted: 4 years ago
Raising interest rates encourages saving. Lowering interest rates encourages spending.
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
Wallstreetatheist
Posts: 7,132
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7/26/2012 11:20:52 AM
Posted: 4 years ago
Or you can have the market set interest rates, so millions of people don't suffer...
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darkkermit
Posts: 11,204
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7/26/2012 11:27:21 AM
Posted: 4 years ago
At 7/26/2012 10:47:56 AM, Lordknukle wrote:
Raising interest rates encourages saving. Lowering interest rates encourages spending.

pretty much this.
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darkkermit
Posts: 11,204
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7/26/2012 11:40:31 AM
Posted: 4 years ago
At 7/26/2012 11:20:52 AM, Wallstreetatheist wrote:
Or you can have the market set interest rates, so millions of people don't suffer...

doesn't work that way since the interest rate is dependent on the money supply. Money supply is based on other things besides "time value of money" such as how difficult it is to mine the resources (in a non-fiat money system).

Technically the FED just "targets" the interest rate, it doesn't "set" it.
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Wallstreetatheist
Posts: 7,132
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7/26/2012 2:24:46 PM
Posted: 4 years ago
At 7/26/2012 11:40:31 AM, darkkermit wrote:
At 7/26/2012 11:20:52 AM, Wallstreetatheist wrote:
Or you can have the market set interest rates, so millions of people don't suffer...

doesn't work that way since the interest rate is dependent on the money supply. Money supply is based on other things besides "time value of money" such as how difficult it is to mine the resources (in a non-fiat money system).

Technically the FED just "targets" the interest rate, it doesn't "set" it.

Hence my statement that the market should set interest rates.
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Primal Diet. Lifting. Reading. Psychedelics. Cold-Approach Pickup. Music.
ConservativePolitico
Posts: 8,210
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7/26/2012 10:41:51 PM
Posted: 4 years ago
At 7/26/2012 2:24:46 PM, Wallstreetatheist wrote:
At 7/26/2012 11:40:31 AM, darkkermit wrote:
At 7/26/2012 11:20:52 AM, Wallstreetatheist wrote:
Or you can have the market set interest rates, so millions of people don't suffer...

doesn't work that way since the interest rate is dependent on the money supply. Money supply is based on other things besides "time value of money" such as how difficult it is to mine the resources (in a non-fiat money system).

Technically the FED just "targets" the interest rate, it doesn't "set" it.

Hence my statement that the market should set interest rates.

Classical Economics for the win!
Jake-migkillertwo
Posts: 67
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7/27/2012 9:16:44 AM
Posted: 4 years ago
At 7/26/2012 10:47:56 AM, Lordknukle wrote:
Raising interest rates encourages saving. Lowering interest rates encourages spending.

Except there's no evidence that higher interest rates cause more saving.

There's a difference between saving and investing.

Saving is income or output which is not consumed. Investment is the purchase of non-human factors of production, or a change in business inventories.

Interest rates are the price of loanable funds. Interest rates are determined by the supply and demand for loanable funds.

Investment is a negative function of the interest rate. The higher the interest rate, the lower the investment. THe lower the interest rate, the more teh investment.

Higher interest rates will cause less investment.
lewis20
Posts: 5,093
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7/27/2012 10:12:47 AM
Posted: 4 years ago
At 7/27/2012 9:16:44 AM, Jake-migkillertwo wrote:
At 7/26/2012 10:47:56 AM, Lordknukle wrote:
Raising interest rates encourages saving. Lowering interest rates encourages spending.

Except there's no evidence that higher interest rates cause more saving.

Isn't that basic economics?
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Lordknukle
Posts: 12,788
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7/27/2012 11:12:16 AM
Posted: 4 years ago
At 7/27/2012 10:12:47 AM, lewis20 wrote:
At 7/27/2012 9:16:44 AM, Jake-migkillertwo wrote:
At 7/26/2012 10:47:56 AM, Lordknukle wrote:
Raising interest rates encourages saving. Lowering interest rates encourages spending.

Except there's no evidence that higher interest rates cause more saving.

Isn't that basic economics?

Yeah...
"Easy is the descent to Avernus, for the door to the Underworld lies upon both day and night. But to retrace your steps and return to the breezes above- that's the task, that's the toil."
slo1
Posts: 4,318
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8/4/2012 10:18:50 AM
Posted: 4 years ago
At 7/26/2012 7:43:42 AM, Masego wrote:
There was an interesting idea proposed to me. I understood the intent but the practicality in this climate is not justifiable. The idea was that Bernanke should increase interest rates and the intent would be to somehow force businesses to spend the cheap cash they have been borrowing and are now hoarding. Government has not come to the party, monetary accomodation whilst helpful has shown diminishing returns. Each time easing is used, it benefits the consumer less and less. #longterm

I can see how someone would say that as companies are raising cash at unprecedented levels with long term low interest bonds. Unfortunately, raising interest rates will not cause them to spend more money. In fact, it will just cause the bond to loose value as the rates go up. The bond holder has less assets on his books and could in fact reduce credit markets making it harder for companies to raise cash.

Companies are sitting on unprecedented levels of cash, but it is profits from overseas that sits in overseas accounts. It is cheaper for a company to issue a corporate bond to raise cash for domestic purposes rather than repatriate their foreign cash holdings and pay 35% tax rate on it.

These are numbers from the beginning of the year to illustrate.
Company | Total Cash | Oversees Cash
Apple |$82B | $54B
Cisco | $45B | $41B
Microsoft |$57B | $51B

In short, you want companies to increase spending then increase demand. Give money back directly to the people rather than the Republican, Democratic, & Fed variations of trickle down economics.
iEconomics
Posts: 5
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8/15/2012 10:12:00 PM
Posted: 4 years ago
At 7/26/2012 11:20:52 AM, Wallstreetatheist wrote:
Or you can have the market set interest rates, so millions of people don't suffer...

There's your solution right there. Free market, Non-manipulated, free interest rates, the only right way to go.