Can anyone explain to me why we don't have a policy of 'natural' or 'equilibrium' interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face. I'll never forget my freshman year investment analysis professor angrily…
What if your entire worldview was just because of near-zero interest rates?
221–230 of 393 posts
Re: What if your entire worldview was just because of near-zero interest rates?
#222It took me a long time to learn that motivators for executives, shareholders, etc. were different than having a necessarily productive workforce. I can't help but say this is just my own experience and what I read though: cheap money seems to be really influential. I worked in a place for a long time that kept buying other companies with access to cheap credit lines and plenty of willing investors. I am not sure if that correlates to how little we were producing ourselves (that is, if there was a corporate strategy of buying companies precedes a product strategy.) However, this strategy would immediately stop when interest rates would jump.
I am too scared to speculate though and only walk away with a better sense of when red flags like this start to raise. Maybe there will be different things to look out for though when these influences are not present. However, I am thinking that maybe the return to "work hard and you'll be seen" will sort of come back again. Well, hopefully for myself it would. Seeing others recognize and value what I did is really encouraging.
Re: What if your entire worldview was just because of near-zero interest rates?
#223Earlier quoted context omitted.
> A stocks worth is determined by supply and demand That's a tautology. It's like saying the price is the price.
This was a novel idea, at some point. For the stock it is a tautology, but for generally determining the worth it is a deep idea. It requires buying into a point of view of this model and, like all models, it is a (useful) approximation. If one accepts that the worth of something is the price that supply and demand establish, there is no room for workers being underpaid (or overpaid), according to this model. They ar…
Re: What if your entire worldview was just because of near-zero interest rates?
#224Earlier quoted context omitted.
In fact it is a terrible idea to pay dividends. You can thank the tax code if you subscribe to that school of thought.
What do you think the value is in a stock that doesn't pay dividends? It seems to me that if you remove them, you're getting into pyramid-scheme territory.
Re: What if your entire worldview was just because of near-zero interest rates?
#225Earlier quoted context omitted.
From my parents' experience guaranteeing people a job will only result in people idling at job site because there is no work to do instead of people idling at home or possibly studying for a job they want to do. Giving artificial jobs don't differ much from giving people artificially valued money.
"Giving artificial jobs don't differ much from giving people artificially valued money." There's a big difference. It uses up the hours so they can't self consume them. And they are forced to turn up on time, and stay the day - or they don't get paid. Which goes back to the root of our exchange system. We don't really exchange money, that's just a token - we exchange the output of our time, which is finite, and there…
A real job that produces value would not need to have been artificially created!
Re: What if your entire worldview was just because of near-zero interest rates?
#226> "What if your entire worldview was just because of near-zero interest rates?" Worldviews typically include who we are, why we're here, what purpose (if any) we have in life, etc. It seems strange to me that someone's worldview could be thoroughly based on interest rates.
It is not very possible to buy a house with high interest rates. So, most of your earnings go to rental cost.
You shape your life with what you have left to spend.
Re: What if your entire worldview was just because of near-zero interest rates?
#227Can anyone explain to me why we don't have a policy of 'natural' or 'equilibrium' interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face. I'll never forget my freshman year investment analysis professor angrily…
Re: What if your entire worldview was just because of near-zero interest rates?
#228Earlier quoted context omitted.
For what it's worth, I don't fundamentally disagree with the MMT viewpoint that you're coming from. But it's not so clear cut. > gives free government money to financial institutions By this, the parent means that nonzero interest rates on government debt represents "free money" that the government pays voluntarily even though it doesn't have to. I'm not so sure. First of all, most of the institutions getting these p…
"That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high." Except that can't happen can it. If Loans create deposits, then to get more savings, you need more loans. You can't have one without the other. What they are trying to do its get people to pay off loans. How many people do you know who pay off loans in the middle of an inflation…
Re: What if your entire worldview was just because of near-zero interest rates?
#229Earlier quoted context omitted.
Lol “forces the feds hand” Congress, in part because of the fed, doesn’t have the ability to regulate it. This is why Andrew Jackson originally dismantled the second bank of the United States (the irony of him being on the $20 federal reserve note is painful). The way the fed really works is that those closest to the supply of money get a higher valued dollar. During the pandemic the fed was straight up letting certa…
The Fed is one of the most misunderstood institutions. Basically, everything you have said is completely wrong, which makes difficult to write a reply, because where to start? In short, the original design of the Fed was correct, where each branch was independent and could set their own interest rate, and they purchased commercial paper to stimulate the economy. This changed during WWII, where the government mandated…
This is surely the main problem. But if we simply had a market equilibrium interest rate, they could not spend like they do. Hence, they are junkies and the Fed is their dealer.
Re: What if your entire worldview was just because of near-zero interest rates?
#230Earlier quoted context omitted.
Look around when you're outside and take notice of all the maintenance not being performed. Speak with people who have a job and see how many of them would describe their workplace as chronically understaffed. We're a long way away from "people idling at a job site". And even if we weren't, there's a cost to idle tasks that sit around waiting for someone to be available to do them. That said, only a small percentage…
1000 people buzzing to build up a startup that has negative unit econimonics and will never be possible is no different than doing nothing at work. That being said, you’re right that we are seeing a lot of genuine demand for important work not being filled. To me, this seems like mid-allocation of labor and it’s one of the effects of a low interest environment.
One could make the case that is actually worse than doing nothing, as it can be seen as a net negative.