Can the Fed raise interest rates?
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Re: Can the Fed raise interest rates?
#2From the article:
Why doesn’t the Fed sell its Treasury bonds then?
Because there’s no one buyer big enough to purchase them. The Federal Reserve itself is now the world’s largest holder of US government debt, after its bond-buying programs pushed its holdings above those of China.
In an otherwise interesting and well written article, this is just an absurd statement. They are under no obligation to sell all of them. They can sell whatever amount is appropriate to lower the price (and raise the rate) to where they want it. Further, toward the end of the article, it is suggested that they might have trouble raising the long term rates even if they are able to successfully raise the short term rate . . . well, duh, sell some of the long term treasury bonds.
Re: Can the Fed raise interest rates?
#3Well, at this point, if the Fed is not forced to raise their rates, then you might as well kiss the global economy goodbye.
Downvote me if you want, but what I said needs to have been said, no matter if you personally agree with it or not.
Re: Can the Fed raise interest rates?
#4That 10% reserve number is interesting. I learned about the 10% reserve ratio in macroeconomics class, where I also learned that there's this thing called the money multiplier. See, if banks are required to hold a fraction r (10%) of their deposits in reserve, then obviously they'll lend out the rest, which will in turn be held or spent by the borrower, and one way or another it'll end up back in a bank. So a (1-r) fraction of the actual cash and Fed-issued money ends up lent out and redeposited. But the banks can loan out a (1-r) fraction of /that/, ad infinitum. So the total amount of deposited money is 1 + (1-r) + (1-r)^2 + ... = 1/r of whatever money (cash and things actually deposited at the Fed) the Fed created in the first place. Since r = 10%, the multiplier is 10.
The official page AFAICT is here:
http://www.federalreserve.gov/monetarypolicy/reservereq.htm
The effective ratio is actually under 10% these days.
Edit: Fixed an inconsequential typo.
Re: Can the Fed raise interest rates?
#5They can't raise the rate because of structural flaws in the fractional reserve banking system. It might actually break this time.
Re: Can the Fed raise interest rates?
#6Well, at this point, if the Fed is not forced to raise their rates, then you might as well kiss the global economy goodbye. Downvote me if you want, but what I said needs to have been said, no matter if you personally agree with it or not.
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 :)
Re: Can the Fed raise interest rates?
#7> If the Fed tried to sell its bond portfolio it would likely tank the market and cause interest rates to spike, undoing much—if not all of—the beneficial economic effects its efforts have achieved over the last few years.
Isn't that exactly the goal? To "raise interest rates"? I mean, the solution to the problem is the thing that they can't do? I don't get it. It makes no sense. The argument is circular.
If rates would spike too much -- which is the same as saying bond prices are falling -- then all they have to do is slow the rate at which they're selling the portfolio.
Re: Can the Fed raise interest rates?
#8That 10% reserve number is interesting. I learned about the 10% reserve ratio in macroeconomics class, where I also learned that there's this thing called the money multiplier. See, if banks are required to hold a fraction r (10%) of their deposits in reserve, then obviously they'll lend out the rest, which will in turn be held or spent by the borrower, and one way or another it'll end up back in a bank. So a (1-r) f…
Well written, thank you. It's beyond my understanding why the fractional reserve banking is allowed by western societies. Why should banks be able to do this, but not other companies or even private persons?
Re: Can the Fed raise interest rates?
#9Most 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% growth rate, we would be using energy at a rate corresponding to the total solar input striking Earth in a little over 400 years. We would consume something comparable to the entire sun in 1400 years from now - See more at: http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-...
Further the FED is privatly owned by banks.
Economics is trying to violate nature laws, it cannot do that so the current system will fail. A new sustainable economic system will emerge.
Re: Can the Fed raise interest rates?
#10> How did the Fed push these reserves into the system? Easy. It created them out of thin air, and used them to buy government securities from banks.
This type of economic wizardry can't be good...