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Can the Fed raise interest rates?

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Re: Can the Fed raise interest rates?

#41

Post by lazypenguin »

leaveyou wrote: post #13

"The Fed is by definition the safest place to put your dollars in the world—because it has the ability to create any money in might need to pay you back." This is fantastic. "The Fed can only pay interest on reserves to one type of institution: banks" This is not fantastic. Why can't I as a simple citizen, put my money at Fed and take advantage of the safest interests ever known to man ? This discrimination has to ce…

Because the system is designed for banks with large sums. If you want similar protection for your money while accruing interest then you can buy government securities (notes, bills and treasuries).

Re: Can the Fed raise interest rates?

#42

Post by elemeno »

leaveyou wrote: post #13

"The Fed is by definition the safest place to put your dollars in the world—because it has the ability to create any money in might need to pay you back." This is fantastic. "The Fed can only pay interest on reserves to one type of institution: banks" This is not fantastic. Why can't I as a simple citizen, put my money at Fed and take advantage of the safest interests ever known to man ? This discrimination has to ce…

You can - buy T-Bills. You can even buy them directly from the US treasury at https://www.treasurydirect.gov/indiv/products/prod_tbills_gl...

This is pretty much exactly what the banks are doing, albeit at a larger scale. They buy T-Bills, or other equivalents such as Gilts (UK government backed bonds) as they're as secure as investments get - with reduced returns as the compensation for the increased security of the bonds being backed by one of the worlds major economies.

For more information - https://en.m.wikipedia.org/wiki/Government_bond and https://en.m.wikipedia.org/wiki/Bond_(finance)

Re: Can the Fed raise interest rates?

#43

Post by ctdonath »

jpollock wrote: post #11
acd wrote: post #9

Most central banks dictate that there should be 2% inflation, which means the economy needs to grow 2% per year. But we live in a world with linear resources so unless we talk about virtual goods the economy cannot grow that much and still be sustainable over the long run. Basically it will violate a nature law which says we cannot ventilate that much heat into space as the economic growth requires. "At that 2.3% gro…

As several people keep hammering into my head, inflation is not the same thing as what people would consider "growth". Depending on your school of economic thought, inflation represents the increase in money supply. So, if I took away every $1 bill and replaced it with a $100 bill, the willingness of everyone to now pay $100 for a coke is inflation. It seems to be an accepted principle that we want to keep people fro…

Inflation needs to remain on par with growth so that $1 (or whatever unit of currency) remains valued at $1 as more value is created within the economy. The total of an economy's currency represents the total value within that economy; think a pie, where the number of slices is the currency representation of the totality of the pie. If the money supply does not increase as the economy grows, then each currency unit effectively stretches to represent more value: as the pie gets bigger, but the number of slices doesn't change, then the value imputed to each slice grows. If the money supply grows but the economy doesn't, the value of each currency unit decreases: the number of slices increases, but the amount of pie per slice decreases. If the currency supply increases on par with the economic growth, the value per unit remains the same while the total value of the economy increases: as the pie grows, you want to increase the number of slices so that each slice has the same amount of pie, even though there is more pie total.

When inflation exceeds growth, people get distressed as their "slice of the pie" gets smaller. When growth exceeds supply, people get distressed as it gets harder to obtain a slice of that pie. And the problem with the Fed conjuring virtual currency out of thin air is it makes each slice of the pie smaller without the pie growing...giving the Fed, and their cronies, a bigger chunk of the pie without earning it.

Re: Can the Fed raise interest rates?

#44

Post by carsongross »

roymurdock wrote: post #18

The crux of the problem is that the Fed is "pushing on a string" - playing with the supply side of money while having absolutely no effect on the demand side. Thomas Palley [1] sums this up nicely in a 2011 critique of QE: The underlying problem is structurally deficient demand caused by thirty years of neoliberal economic policies that have undermined the income and demand generation process (Palley, 2009). However,…

A universal citizens dividend funded via direct issuance would be the least corrupt way to stimulate the economy at this point.

In the long run, we will need a debt-jubilee if we want to continue the current monetary system.

Re: Can the Fed raise interest rates?

#45

Post by irln »

Animats wrote: post #37

The US Treasury could raise rates on their paper (T-bills and bonds) to push rates up, but then the Treasury would be paying above market rate.

I believe the rate is determined by the bidders at the auction and not by the Treasury.

https://www.treasurydirect.gov/instit/auctfund/work/work.htm

Re: Can the Fed raise interest rates?

#46

Post by jayfuerstenberg »

irln wrote: post #23
Kinnard wrote: post #6

Earlier quoted context omitted.

You may want to explain more about why you feel that way for people who don't have insights into your personal viewpoint or the broad arguments for that matter :)

I agree. Too often sweeping viewpoints are made without data. The crazy part is this is not some grand hidden conspiracy, the data is out there to explore and use to support arguments for and against the fed. [1][2] [1] http://www.federalreserve.gov/ [2] https://research.stlouisfed.org/fred2/

Agreed, there is no conspiracy here. Just a series of systemic flaws. What's scary is that there needs to be a discussion on this but few economists are brave enough to voice their concerns. David Harvey, Steve Keen, and others are stepping up but we need more people.

Re: Can the Fed raise interest rates?

#47

Post by rhino369 »

acd wrote: post #9

Most central banks dictate that there should be 2% inflation, which means the economy needs to grow 2% per year. But we live in a world with linear resources so unless we talk about virtual goods the economy cannot grow that much and still be sustainable over the long run. Basically it will violate a nature law which says we cannot ventilate that much heat into space as the economic growth requires. "At that 2.3% gro…

>Most central banks dictate that there should be 2% inflation, which means the economy needs to grow 2% per year.

That's not true. Inflation isn't directly tied to growth. The Fed attempts to make inflation 2% no matter what the economy grows. 2% growth might cause 2% inflation, but if there was 5% growth, the fed would reduce money supply to keep inflation around 3%.

And during no growth, the fed could increase money supply to ensure inflation during recessions. And that is in fact what they did during the great recession.

Re: Can the Fed raise interest rates?

#48

Post by HorizonXP »

leaveyou wrote: post #13

"The Fed is by definition the safest place to put your dollars in the world—because it has the ability to create any money in might need to pay you back." This is fantastic. "The Fed can only pay interest on reserves to one type of institution: banks" This is not fantastic. Why can't I as a simple citizen, put my money at Fed and take advantage of the safest interests ever known to man ? This discrimination has to ce…

So then the obvious solution is to create your own bank and start depositing money in the Fed. If you can't create a bank, you could probably buy one. I know a YC company that was trying to do that, so it can't be that hard!

Re: Can the Fed raise interest rates?

#49

Post by tedsanders »

davidgrenier wrote: post #28
MaysonL wrote: post #17

Earlier quoted context omitted.

Why?

Creating money out of thin air ends up devaluing the currency that is currently in circulation. My understanding is weak and I'm still not clear whether the Zeitgeist Movement's position on the matter is correct, but I'd recommend watching the second of the Zeitgeist Movement's video on the matter to enrich your opinion.

Not necessarily. Over the past seven years the monetary base has expanded significantly, yet inflation has remained super low.

It's true that creating money out of thin air increases the supply of money. But the price of money is not set by one factor of supply alone. You also have to consider the velocity of money (affecting supply) and the demand for money. If these are changing too, then you can certainly increase the supply of money without devaluing the currency.

Also you can have counterintuitive effects where increasing the supply of money stimulates the economy increasing the demand for money thereby strengthening the value of the currency overall.

Re: Can the Fed raise interest rates?

#50

Post by jegutman »

So first the fed cut rates and many people called them unprincipled and we would have run away inflation "just around the corner" and they were shown to be quite wrong. Now these same people are calling for raising rates what traditionally used forms of data suggest is at least a little too early and there seems to be a possibility that the fed is going to raise rates.
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