FED: If the Fed has to exist, what do you think an ideal interest rate is?

[Microsecessionist]

Of course, it would be best if we went to free banking and if the government only collected in gold.

Unfortunately the Fed exists.

That said, what do you think the ideal interest rate would be? I think it should be at least 40%, so that the currency that we're forced to use is stronger and so that peoples' savings get strengthened rather than wiped out. That way, no one ever borrows.

The only downside I see with a Federal interest rate of 40% is that 40% truly is above what the market would charge, but with the Federal reserve, you aren't going to have market-based interest rates anyway.

 

[rp08orbust]

Infinity.

 

[Acala]

?

Of course, it would be best if we went to free banking and if the government only collected in gold.

Unfortunately the Fed exists.

That said, what do you think the ideal interest rate would be? I think it should be at least 40%, so that the currency that we're forced to use is stronger and so that peoples' savings get strengthened rather than wiped out. That way, no one ever borrows.

The only downside I see with a Federal interest rate of 40% is that 40% truly is above what the market would charge, but with the Federal reserve, you aren't going to have market-based interest rates anyway.

It is not possible to set prices by fiat. Period. This was the great achievement of von Mises' book "Socialism". You cannot, the Fed cannot, the government cannot set ANY prices including interest rates because it is not possible for any person or think tank to possess the information needed. The information needed is a vast, dynamic aggregate of vast, dynamic aggregates of dynamic subjective valuations of goods, services, and dynamic individual circumstances. Only in a free market with free pricing can the necessary information needed to "set" interest rates be gathered and evaluated.

The idea that you, or anyone else, can pull an interest rate out of a hat demonstrates a complete lack of understanding of the way prices work and the market meaning of interest rates.

 

[hazek]

EDIT: basically this ^

That's the whole point.. No one person can know what it is. Only the market can collectively over and over and over again determine what the right interest rates are for that particular point in time.

 

[VBRonPaulFan]

Of course, it would be best if we went to free banking and if the government only collected in gold.

Unfortunately the Fed exists.

That said, what do you think the ideal interest rate would be? I think it should be at least 40%, so that the currency that we're forced to use is stronger and so that peoples' savings get strengthened rather than wiped out. That way, no one ever borrows.

The only downside I see with a Federal interest rate of 40% is that 40% truly is above what the market would charge, but with the Federal reserve, you aren't going to have market-based interest rates anyway.

If the FED HAD to exist (which it doesn't), they probably shouldn't set it at all. They should probably set it based on prevailing market rates somehow.

 

[libertyjam]

I saw that article and immediately thought, "what a load of fail."

 

[economics102]

This is like saying "what's the ideal price of bread." You can't do it, the very concept of price fixing doesn't work, and fixing the price of money is no different.

If the Fed HAS to exist, it should simply do nothing, or perhaps it could operate without setting target rates and doing FOMC and crap to try to manipulate rates.

When Paul Volcker was Fed chairman he pretty much left the market alone, and that was about as good as you can get if you're starting from the premise that the Fed is going to be allowed to exist.

 

[low preference guy]

lol

 

[zerosdontcount]

You guys are caught up in ideology. Gold's money supply is always between 2-5% annually, there is no reason that a Federal Reserve couldn't stay at a consistent 3%.

 

[Acala]

You guys are caught up in ideology. Gold's money supply is always between 2-5% annually, there is no reason that a Federal Reserve couldn't stay at a consistent 3%.

Interest rates in a fiat/central banking system do not equate at all to the expansion of gold money in a commodity money system because credit money in a central banking system is not directly controlled by the central bank.

However, if you had a free banking system, with no central bank, then you could compare a fiat system in which an exact amount of new fiat currency was created by government each year and a commodity money system in which, for example, a predictable amount of gold was mined each year.

However, the problem with any fiat currency, even without central banking, is that government cannot be trusted to limit the creation of new currency.

 

[brandon]

pi%

 

[erowe1]

One Trillion percent.

 

[heavenlyboy34]

It is not possible to set prices by fiat. Period. This was the great achievement of von Mises' book "Socialism". You cannot, the Fed cannot, the government cannot set ANY prices including interest rates because it is not possible for any person or think tank to possess the information needed. The information needed is a vast, dynamic aggregate of vast, dynamic aggregates of dynamic subjective valuations of goods, services, and dynamic individual circumstances. Only in a free market with free pricing can the necessary information needed to "set" interest rates be gathered and evaluated.

The idea that you, or anyone else, can pull an interest rate out of a hat demonstrates a complete lack of understanding of the way prices work and the market meaning of interest rates.

FTW!!

 

[heavenlyboy34]

You guys are caught up in ideology. Gold's money supply is always between 2-5% annually, there is no reason that a Federal Reserve couldn't stay at a consistent 3%.

I think it was Friedman who argued that the FED could be replaced entirely by a computer that keeps the inflation rate at a consistent rate, as you say. Whether it would work, I don't know.

 

[The Gold Standard]

I think it was Friedman who argued that the FED could be replaced entirely by a computer that keeps the inflation rate at a consistent rate, as you say. Whether it would work, I don't know.

When you have inflation the corresponding boom must be followed by a contraction of the money/credit supply to clear out the malinvestment. If the computer just keeps on inflating, we will eventually end up where we are now where the vast majority of the economy is malinvestment and only a huge, painful deflation/contraction will clean it up.

 

[erowe1]

You guys are caught up in ideology. Gold's money supply is always between 2-5% annually, there is no reason that a Federal Reserve couldn't stay at a consistent 3%.

Why should it try to emulate whatever the right percent is, when it can instead set it at a percent so high that the Fed would be irrelevant?

One trillion percent.

 

[Zippyjuan]

There is not single interest rate anyways. There are long term and short term rates. Shorter term rates may tend to follow rates set by the Fed (rates at which the banks can borrow from the Fed) and longer term rates tend to be based on Treasury note rates. Mortgages mostly follow ten year Treasury rates. Interest rates on Treasury notes are based on auctions and are set by supply and demand for the notes.

There are three basic components of an interest rate and expected rate of inflation is probably the biggest factor. If a lender expects a high rate of inflation during the time of the loan, they will demand a high interest rate to compensate them for this- giving them a real rate of return. The second component is their desired real rate of return and the third is a risk premium- the more likely a person is to pay back the loan, the lower the risk premium that gets added to the base rate. So let's try an example. Say the expected rate of inflation during the loan period is three percent. A lender will then start with three percent as the base for their rate. They want a half a percent real return on the loan so that gets added in. Now the rate is up to 3.5%. Say the borrow has a good credit history and is considered very reliable- now we add in one tenth of a percent so the final rate will be 3.6%.

Thus, there is not any single interest rate to set. Rates will vary depending on many factors- the length of the loan, the expected rate of inflation, a risk factor for the borrower, and the desired real rate of return the lender wants.

 

[hazek]

Thus, there is not any single interest rate to set.

Nor is there a single person or group of people capable of knowing how to properly set any interest rate.

 

[stuntman stoll]

It is not possible to set prices by fiat. Period. This was the great achievement of von Mises' book "Socialism". You cannot, the Fed cannot, the government cannot set ANY prices including interest rates because it is not possible for any person or think tank to possess the information needed. The information needed is a vast, dynamic aggregate of vast, dynamic aggregates of dynamic subjective valuations of goods, services, and dynamic individual circumstances. Only in a free market with free pricing can the necessary information needed to "set" interest rates be gathered and evaluated.

The idea that you, or anyone else, can pull an interest rate out of a hat demonstrates a complete lack of understanding of the way prices work and the market meaning of interest rates.

Prices can and are and are set by fiat. that's why we can see the damage that's done. (I know what you meant).
I'd also like to point out that the market also is not perfect (dow 1999, rotting produce, etc.) However, the market is as close as you can get to the right price. Coercion only makes things worse.

 

[hugolp]

You guys are caught up in ideology. Gold's money supply is always between 2-5% annually, there is no reason that a Federal Reserve couldn't stay at a consistent 3%.

You are talking about the rate of monetary inflation. He is talking about the interest rates the Fed sets. They are different things.