Feds to cut to -10%

Discussion in 'Economics' started by Wallace, Oct 7, 2008.

  1. pitz


    Sure...if cash is now so valuable, why on earth should banks store it in their vaults for you for 'free'?
  2. cszulc


  3. not so far-fetched, it feels like that is already the norm, to some degree...the banks don't pay interest, and they loan it out for upwards of 10 average, so in essence, the above scenario already exists.
  4. pitz


    Seriously though, has anyone actually tried negative interest rates in a modern economy?

    Negative interest rates should encourage inventory builds of things like commodities, and would help the banks re-liquiefy themselves.

    Is 0% really the floor for interest rates?

    Seems to me that it would be a lot fairer to institute negative interest rates and actually *pay* borrowers to borrow, than it would be for Federal Reserve and Treasury officials to run around helicopter-dropping money on the worst securities possible.

    At least orderly liquidation of debts with negative interest injections of cash into the market would result in the realization of fair value for securities. This $700 billion bailout package has corruption and backroom shennanigans written all over it.
  5. pitz


    Banks don't pay interest? What???

    Maybe not to retail customers that schlep their piggybanks to $15/hour tellers (but they are paying the tellers who bring in those deposits), but banks pay interest on all of the money they borrow to lend out, only making a profit when they lend at a higher rate of interest than they pay.
  6. lrm21


    We have that now.

    America’s inflation rate of above 5% is an advantage. Not only are real interest rates negative, but inflation is also helping to bring the housing market back to fair value with a smaller fall in prices than otherwise. But in another way America is more exposed than Japan was. When its bubble burst in 1991, Japan’s households saved 15% of their income. By 2001 saving had fallen to 5%, which helped to prop up consumer spending. America’s saving rate of close to zero leaves no such cushion.


    IF you subscribe to the school of Austrian economics there is nothing, absolutely nothing that can be done to prevent the deflationary collapse. The only thing that can be done is delay or extend the process via government intervention.

    Monetarist believe you can avoid it.

    1929, Austrians say Monetarist and Keynesian tried and failed. Monetarist say they didnt get a fair shot.

    1991 Austrians say Monetarists in Japan followed the play book and failed.

    2008 Austrians say we are going to pay big time. Monetarists say 3rd times the charm.

    To put it another way, the theorem of the economic impossibility of socialism, which the Austrian economists Ludwig von Mises and Friedrich A. Hayek discovered, is fully applicable to central banks in general, and to the Federal Reserve and (at one time) Alan Greenspan and (currently) Ben Bernanke in particular. According to this theorem, it is impossible to organize society, in terms of economics, based on coercive commands issued by a planning agency, since such a body can never obtain the information it needs to infuse its commands with a coordinating nature. Indeed, nothing is more dangerous than to indulge in the "fatal conceit" — to use Hayek's useful expression — of believing oneself omniscient or at least wise and powerful enough to be able to keep the most suitable monetary policy fine-tuned at all times. Hence, rather than soften the most violent ups and downs of the economic cycle, the Federal Reserve and, to a lesser extent, the European Central Bank, have most likely been their main architects and the culprits in their worsening.

    Jesús Huerta de Soto, professor of economics at Rey Juan Carlos University in Madrid, is Spain's leading Austrian economist.