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

[hazek]

You may want to take a look at this piece.

Man your propaganda is really good. You got me to change the argument about the FED causing malinvestment with artificially low interest rates to something you were right about, that the FED had no effect on mortgage rates. BUT MORTGAGE RATES WERE IRRELEVANT FOR THE HOUSING BUBBLE.

I think you need to rewatch a man from the past predicting the future to understand how FED low interest rates caused the housing bubble:


Of course it wasn't just the FED's fault, but the FED's low interest rates were the facilitator that left the banks with a lot of cheap money that they then gambled on junk mortgage securities which then fueled a demand for these securities which then perpetuated the bubble. You are very tricky, you little weasel you. The artificially set interest rates by the FED were pivotal for causing the housing market bubble and you're going to claim there was no good reason to raise interest rates? STOP SPREADING PROPAGANDA.

 

[hazek]

You are right- the Fed cannot lower the unemployment rate. That will only go down when businesses start to hire more people- and the Fed can't force them to do that. They won't hire until they see their sales increase enough to justify it.

Hmm maybe we should have the army force the businesses to hire at gun point, maybe that would work. What do you think?

 

[hazek]

If someone could tell me how a high centralized interest rate wouldn't drive prices down, that would be good.

Supply and demand. Less money, more goods, prices go down.

 

[Zippyjuan]

Peter Schiff does a pretty good job explaining how the housing bubble happened (starting someplace around 30 minutes it). As he correctly points out, a major factor was the divorce of the mortgage issuer from who would eventually get the money from that mortgage. When the seller of the mortgage gets paid no matter whether the person borrowing can pay it back or not, the standards fell dramatically. The more mortgages they issued, the more money they paid. No down payment. Eventually no income even, Instead of verified assets, 20% down, and verified ability to pay, anybody able to sign their name was basically given a loan. Fed interest rates had nothing to do with that. The key was the market for the mortgage backed securities- which was the reselling of the mortgages. This was what fed the bubble- the market for those securities. When that market evaporated, then the housing market collapsed.

 

[hazek]

Peter Schiff does a pretty good job explaining how the housing bubble happened (starting someplace around 30 minutes it). As he correctly points out, a major factor was the divorce of the mortgage issuer from who would eventually get the money from that mortgage. When the seller of the mortgage gets paid no matter whether the person borrowing can pay it back or not, the standards fell dramatically. The more mortgages they issued, the more money they paid. No down payment. Eventually no income even, Instead of verified assets, 20% down, and verified ability to pay, anybody able to sign their name was basically given a loan. Fed interest rates had nothing to do with that.

Without the FED low interest rates the financials wouldn't have had the cheap money to gamble on these mortgage securities that created a demand for them and fueled the bubble and everything else almost wouldn't have mattered. Are you disputing this?

 

[Zippyjuan]

They offered higher return and lower perceived (which turned out to be wrong) risk- that is why they sold. If the Fed had higher rates, the rates on those would still be higher too.

 

[hazek]

Ok, I'll take that as you agreeing with the FED playing the pivotal role in supplying the cheap money that the banks then foolishly, as we now know and you correctly point out, gambled with, since you again wont mention the cheap money.

You just can't say the truth, can you? You just can't say that if there wasn't any cheap money to gamble with there wouldn't have been any gambling on such a humongous scale. It's simply too hard for you to admit this, right?

 

[hazek]

Zippyjuan actually you know what? It's good that I posted that Schiff video because the way you are behaving is exactly as ignorant as his audience in that video so take a good look at them and remember how they lost after hearing the truth and ignoring it.

I sure hope same doesn't happen to your ignorant ass.

 

[enjerth]

All this would suggest that low rates for now are apropriate. If inflation rises, then the rate should also be raised.

Interest rate is an incentive to save/spend. If the overnight lending rate is too low (such as ZERO), this actually discourages banks from building reserves. You may count it as necessary for the good of the economy, but if there's a fundamental problem with banks having too little in reserves, a super-low interest rate policy only exacerbates that problem and create more volatility. It is destructive, even when inflation is low.

 

[Zippyjuan]

Let me ask a simple question. If the Fed adjusting interest rates causes things to boom in the housing market, why hasn't the housing market improved since the Fed continued to lower rates over the last couple years? Their rates are even lower now than they were during the boom- yet housing has gone the opposite direction from where it did during the bubble. Simple- the Fed has no control over the housing market. They do not have the power to target any particular sector of the economy. There were other factors at work with massively greater impact. Money is even looser today.

 

[The Gold Standard]

Let me ask a simple question. If the Fed adjusting interest rates causes things to boom in the housing market, why hasn't the housing market improved since the Fed continued to lower rates over the last couple years? Their rates are even lower now than they were during the boom. Simple- the Fed has no control over the housing market. They do not have the power to target any particular sector of the economy. There were other factors at work with massively greater impact. Money is even looser today.

The Fed doesn't pick where the bubble forms, they just make it certain that one will form somewhere. Right now that loose money is buying commodities and propping up failed central banks around the world. No one knows where the next bubble will be, but we do know there will be one.

 

[Zippyjuan]

There are always bubbles in something going on.

 

[The Gold Standard]

There are always bubbles in something going on.

That's what I said. And fractional reserve banking and monetary inflation are the reason that they happen.

 

[hazek]

There are always bubbles in something going on.

Yes but because of the FED they get significantly magnified and the corrections painfully prolonged. Of course you foolishly believe the other way around, but that's because you are a fool and can't accept reality.

EDIT: and don't even think about quoting my post and asking me for explaining myself, because if you really wanted to learn you can go study Austrian economics and particularly the Austrian business cycle theory.

 

[Acala]

There are always bubbles in something going on.

The big bubbles only occur where NEW money is coming into the economy through banking or government subsidy. Other than that, the bubbles are short-term and relatively harmless. Beany Baby bubbles don't cause major banks to fold.

 

[-C-]

basically you'd need a two-tier credit system, with 2% interest on massive productive investment/infrastructure, and 4% for other, similar, less productive investments. Not to mention we need a lawful separation of Commercial and Investment Banking.

 

[sam9657]

Infiniti, that would pretty render the Fed impotent and we can just ignore them.

 

[whippoorwill]

I'd say it should be close to the U6 number. But as soon as the FED says they are going to use that, the BLS will get busy fuddging that data downward. The whole point is to break the monopoly of money and price.

 

[Fox McCloud]

That's like saying "If the USPS were to exist, what should the price of stamps be?"

There's no way to know if it's too much or too little; only the market-place is capable of deciding prices; government institutions can only arrive at the right price by pure chance (even then, if the price ever changes, it's highly unlikely the government price would change with what the market rate should be).

The ideal interest rate should be....whatever the market goes for---we have no way of knowing what it should be, currently.

 

[LittleChiefThunderCloud]

What do you mean?

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%.

What is "Gold's money supply"? Please use meaningful terminology. Of course if you did, you'd run the risk of being accused of "ideology". Horrors! Ideas! Better stick to ... what?

If you meant the annual increase in the supply of gold, I see no such connection to interest rate. The rate that the Fed sets is the interest rate required of its borrowers, which affects other rates. Without a central bank interest rates on borrowing are set by supply & demand, just like any thing else. The imposition of any rate by fiat must necessarily cause problems because it is not the rate resulting from supply & demand. And it must deviate at some point, and unlike rates resulting from supply & demand, is not self-correcting.

The real answer is that not only is there no need for any central bank of any conception, but central banks are necessarily destructive economically, politically and in every other way. Central banks are not, and cannot be benign, they are the concentration of a monopoly on creation of legal tender. No tyrant could ask for a better way of gaining and consolidating power.

Please read "Creature from Jekyll Island" by G Edward Griffin.