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Why are interest rates so low?

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Re: Why are interest rates so low?

#131

Post by jfoutz »

saosebastiao wrote: post #77

Interest rates are low because inflation is low and central banks are irrationally terrified of even mild deflation, fearing some sort of hypothetical deflationary spiral (despite a complete lack of precedent). And since the rate of technological progress is increasing , and technological progress creates deflationary pressure , they have to work extra hard to keep up. Tell me, when was the last time you stopped buyi…

Oil is a good recent example. the US is buying more gas than ever, but with fewer workers. I absolutely stop buying coffee when i don't have a job, regardless of price.

Deflation is like that oil microcosm but with everything.

Re: Why are interest rates so low?

#132

Post by curun1r »

sumedh wrote: post #111
dgregd wrote: post #53

Earlier quoted context omitted.

> many bank/insurance/pension calculations It will also clearly show how big banks, HFT companies are making huge profits. They are slowly pulling money out of your pension fund. Banks do not produce, they have no income from dividends, so how they earn?

> Banks do not produce, they have no income from dividends, so how they earn? They provide capital without which you cannot produce anything. They make money by difference of rates between deposits and lending.

That's the theory and few rational people would argue that those services are necessary. But we've been in a tail-wagging-the-dog situation for a while now. The industry seems to believe that they're entitled to an increasingly large share of the world's wealth. They've seemingly forgotten that they're a facilitator of progress and don't represent progress in and of themselves. They recruit the best and the brightest to create ever-more-complicated financial instruments robbing society of the contributions those engineers/scientists would have made elsewhere.

Much like the same cellular mechanisms that sustain life become cancerous when there is unchecked growth, the same financial apparatus that we need to facilitate progress becomes cancerous when its growth is unchecked and it loses focus of the purpose that it serves.

Re: Why are interest rates so low?

#133

Post by mcguire »

colund wrote: post #93
cgh wrote: post #66

Earlier quoted context omitted.

"housing prices are all time high." This is not a good thing and I'm not sure why you seem to think it is. You talk about happiness - one way to help the "happiness quotient" is affordable housing.

It's true that all time housing prices is not a good thing. But low interest rates helps keep the Swedish housing bubble growing. Low interest rates encourages people to invest big but when the interest rates go back up people risk getting in financial trouble.

That would answer my question about the availability of loans: there is too much money available. Sounds like Sweden is going to join the rest of us in the Twenty-first Century soon.

Re: Why are interest rates so low?

#134

Post by dgregd »

sumedh wrote: post #111
dgregd wrote: post #53

Earlier quoted context omitted.

> many bank/insurance/pension calculations It will also clearly show how big banks, HFT companies are making huge profits. They are slowly pulling money out of your pension fund. Banks do not produce, they have no income from dividends, so how they earn?

> Banks do not produce, they have no income from dividends, so how they earn? They provide capital without which you cannot produce anything. They make money by difference of rates between deposits and lending.

1. Banks do not need deposits to lend money to ordinary people. They lend money from FED, which 'prints' them.

2. If interest rates are low then Banks profits should be also low because of small difference between deposits and lending rates. Am I right?

3. Just like casinos in Vegas need capital donors, the ultimate casino also needs capital donors. Don't want to play on Wall Street? No problem, your pension fund (dumb money) is more than enough.

Re: Why are interest rates so low?

#135

Post by maaku »

don_draper wrote: post #18

Another good question: Why are S&P500 stock dividends so low? The average S&P500 stock dividend yield is like 2%. In theory, you buy stocks to receive earnings. But if companies only give out a fraction of those earnings, you as an investor are not really getting much. So how can companies get away with a 2% dividend yield?

Dividends are not the only way to turn stock into value. Stock is ownership, and many S&P 500 companies e.g. Apple have huge cash holdings in the bank, for example. Your share of one of these companies is a proportionate share of everything they own and everything they are likely to acquire in the years to come.

Re: Why are interest rates so low?

#136

Post by aetherson »

xorcist wrote: post #129
aetherson wrote: post #89

Earlier quoted context omitted.

Things that you can do today that you couldn't do in 1990: * Survive much longer with many types of cancer. * Live a pretty normal life, more or less indefinitely, despite being HIV+ * See your grandkids that live in a different state via a high-quality video connection. * Enjoy television shows that offer multi-month and multi-year arcs and are designed to be consumed by dedicated fans in order, rather than principa…

While all those points are true, they are mainly because of advancing science, rather than economic growth. Those are partly interconnected, but there are also important differences. The Internet as you know it is also a direct product of its academic background. That's why we have had network neutrality so inherent in its culture. That's why there are only peers, not producers and consumers. If it had been designed…

No, they aren't. Those are all products, all produced for profit. They may depend on basic research, but basic research does not get products into people's hands, and basic research does not make people wealthy enough to pay for new products.

I am obviously not arguing against research, and I think your whole deal of arguing that there's some kind of tradeoff to be made between them is wrong. You can have more research and more economic growth. In fact, if you don't have more economic growth, it'll be harder to have more research, and to some extent vice versa.

This isn't to get embroiled in a real tangent about network neutrality. Nobody is advocating for any kind of particular regulatory framework for the internet, here.

Re: Why are interest rates so low?

#137

Post by jsprogrammer »

dgregd wrote: post #53
dualogy wrote: post #34

Earlier quoted context omitted.

> Why the obsession of economic growth? Easy. Essentially unknowable/unpredictable future growth expectations/extrapolations were already baked into present-day voter promises, welfare obligations and many bank/insurance/pension calculations, plus current "financial asset" valuations. Now the big scramble is on to will said growth assumptions into actually happening, lest "all bets will be off", literally.

> many bank/insurance/pension calculations It will also clearly show how big banks, HFT companies are making huge profits. They are slowly pulling money out of your pension fund. Banks do not produce, they have no income from dividends, so how they earn?

Commercial banks in the US receive a 6% annual dividend from the USFRB.

Re: Why are interest rates so low?

#138

Post by jsprogrammer »

zo1 wrote: post #75
dgregd wrote: post #53

Earlier quoted context omitted.

> many bank/insurance/pension calculations It will also clearly show how big banks, HFT companies are making huge profits. They are slowly pulling money out of your pension fund. Banks do not produce, they have no income from dividends, so how they earn?

>" Banks do not produce, they have no income from dividends, so how they earn? " They provide a service. Just because they don't "produce" something by processing raw materials, or less-processed goods, doesn't meant they're not providing something of value to someone. But, additionally and simplistically, they make money from giving out loans at higher interest rates than what they give out at in deposits.

They don't just give out loans, they create brand new money. They also have a state-enforced and -backed monopoly on this creation of new money. So they do "produce", it's just that what they produce is more or less "fictional" violence tokens.

Re: Why are interest rates so low?

#139

Post by adventured »

mcguire wrote: post #122
colund wrote: post #6

Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high. This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population…

" ...negative prime interest rate and [...] housing prices are all time high. " Wait. How does that work? Negative prime interest rate -> no loans available -> housing (and other credit-oriented purchase) prices fall.

Negative interest rates doesn't mean no loans are available, it means the central bank is charging banks for the deposits they hold and typically that gets passed along to savers.

One theory behind it is to force savers to spend, by adding a cost to their savings. And to force banks to lend, by adding a cost to their cash holdings.

Something the parent comment doesn't seem to realize, is that having negative interest rates is a sign your economy is not functioning properly. If you have to resort to negative interest rates to keep assets from falling in value, and to drive consumer spending or bank loans, then you're already in deep trouble. Sweden's negative interest rates are likely an indication that a storm is coming for them; were they to raise interest rates it would cause a recession; and if they don't raise interest rates, their real estate bubble will continue to inflate until it explodes. They have to take their medicine one way or another.

Here's a good summary of how it works:

http://www.bloombergview.com/quicktake/negative-interest-rat...

Re: Why are interest rates so low?

#140

Post by boomlinde »

mcguire wrote: post #127
enraged_camel wrote: post #73

Earlier quoted context omitted.

You can have technological, scientific and cultural advancement without economic growth. Building more shopping malls out in the suburbs leads to growth, but it doesn't advance society.

Can you? How can you have technological or scientific advancement without someone to pay for it in advance? Who would pay for it without a reasonable expectation of getting more out than they had to put in? (For some reason, I'm reminded of the Superconducting Super Collider and the western invention (discovery? reverse-engineering?) of porcelain.) I'm going to leave the idea of "cultural advancement" alone, 'cause I…

> Who would pay for it without a reasonable expectation of getting more out than they had to put in?

Perhaps no one, in that sense limiting technological advancement to things that would benefit people.

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