Let's have a thread about this.

There is a good article about this here:
http://www.huffingtonpost.com/mobileweb/david-einhorn/fed-interest-rates_b_1472509.html

Caution, there are seriously a lot of words. But don't panic, I'll summarize with short sentences. Here is a quote.

Quote :

"For the super wealthy, zero rates supported by a Bernanke put on the bond market encourage outsized income through leveraged speculation. For everyone else, zero rates reduce the standard of living because greater food and energy costs soak up income. Ironically, it is some Republicans that are beginning to question the Jelly Donut monetary policy, while Democrats generally support it. Democrats who sincerely care about income inequality should speak out against the Fed's policies."

So, this is all about the ZIRP. It is much like the Derp, but it comes from other words.
ZIRP - Zero Interest Rate Policy

Now, the article says that the ZIRP is like a jelly donut, because it's used to stimulate the economy. When you eat a jelly donut you get stimulated, but the problem is that we've eaten an entire box of jelly donuts and we're still eating more, turning our monetary policy into something akin to the Krispy Kreme Challenge. Buy why should you care? You completed the challenge. The argument is that the ZIRP, when sustained, can really hurt the economy. It helps institutional investors and banks generally, but not necessarily the average person. The author argues it hurts the average guy. It makes rates lower, but if the problem was the you had bad credit or a lack of good business conditions, it might not actually make it easier for you to get a loan.



Now, our Fed chairman, Ben, disagrees with this. The argument boils down to the fact that we're not like Japan in the 90s because we don't have deflation. So

ZIRP + deflation = Japan in 1990
ZIRP + inflation = the US today

Ben is pretty smart and he probably has a point. But it's kind of like arguing the Krispy Kreme Challenge doesn't have adverse health effects because donuts are bad when you're lying on the couch eating them. While that's true, it doesn't mean that it's healthy to eat while you're sprinting either.

What does TSB think about all these words? Can higher interest rates sometimes promote growth? Or is our real problem a lack of cat macros on the subject?

5/4/2012 12:08:26 AM

Bill Stills 2012

I'm Krallum and I approved this message.

5/4/2012 12:17:20 AM

Reread it... let me think about this more.

[Edited on May 4, 2012 at 1:27 AM. Reason : rethinking]

5/4/2012 1:06:46 AM

lenient monetary policy is easily negated by lenient fiscal policy. If Congress had managed to avoid spending like drunken sailors then monetary stimulus should have worked. Instead, all it did was funnel the new cash through Congress, eliminating any potential stimulative effect it might have had.

5/4/2012 1:33:56 AM

^ I agree... when you are so much in a hole and don't have the assets to stimulate, the going is tough. Congress allocates where they think the money should go... and that doesn't help anything either.

[Edited on May 4, 2012 at 3:07 AM. Reason : blah]

5/4/2012 3:06:17 AM

Quote :

"If Congress had managed to avoid spending like drunken sailors then monetary stimulus should have worked. Instead, all it did was funnel the new cash through Congress, eliminating any potential stimulative effect it might have had."

yeah, I don't understand what this means.

Ok, sure, the national debt is a bad thing, but I had considered it at least somewhat separable from the Fed policies like the zero interest rates. Plus, the arguments for why the zero rates policy is bad boil down to the promise from the Fed to keep rates low to save the economy. I know the government has to borrow in order to lend (or print), but that borrowing side of it hasn't been invoked in these arguments.

5/4/2012 8:14:34 AM

Quote :

"Instead, all it did was funnel the new cash through Congress, eliminating any potential stimulative effect it might have had."

I don't quite understand that. Congress is the most likely person every to spend it, stimulus is generally considered to "not work" when you give people money and they don't spend it. What does one extra set of hands matter if none of it hits that hand's pocket?

[Edited on May 4, 2012 at 12:38 PM. Reason : ]

5/4/2012 12:37:40 PM

First, the money was spent on resources that were not idle. thus the consumption did not boost GDP, but cannibalized private activity.
Second, Congress spent it on yet more Government, which due to regime uncertainty means it went towards reducing America's ability to produce, actually causing more harm than the stimulative effect of running the printing press helped.

If you print money and give it to someone and they don't spend it, no harm done, just print more. But if you print it and give it to someone which uses it to waste real resources that could have otherwise been productively used, or worse spend it on government bureaus whose purpose is to halt productive economic activity, that makes all of us poorer and drags on the recession.

[Edited on May 5, 2012 at 2:03 AM. Reason : ,.,]

5/5/2012 2:01:06 AM

Quote :

"If you print money and give it to someone and they don't spend it, no harm done, just print more."

There is harm done, you reduce the value of the currency that actually is moving, thereby taking active money away and increasing the amount of stagnant money.

Quote :

"But if you print it and give it to someone which uses it to waste real resources that could have otherwise been productively used"

Better they be misused than unused.

5/7/2012 12:20:44 PM

Quote :

"Better they be misused than unused."

5/7/2012 12:24:07 PM

Quote :

"There is harm done, you reduce the value of the currency that actually is moving, thereby taking active money away and increasing the amount of stagnant money."

Money that is unspent has no impact upon the value of the currency that is moving. That said, the purpose of running the presses is to devalue the currency.

Quote :

"Better they be misused than unused."

But like I said, the resources used were not unused. So you debased the currency, shrank private sector GDP, grew government sector GDP, instilled fear in the economy over growing government debts, fed some special interests, and accomplished nothing in terms of under-utilized resources.

5/7/2012 1:20:58 PM

Quote :

"Money that is unspent has no impact upon the value of the currency that is moving."

Sure it does, the money doesn't just sit there, it is not part of consumption so it's part of investment, thus devaluing the value of the money in movement.

Quote :

"That said, the purpose of running the presses is to devalue the currency."

That's a means, not an end. The purpose is to circulate that money, to increase it's velocity. You can do that by printing money, which would have two methods to achieving those ends:
1. Give the money to people who will use it (the government, the poor, or as some sort of rebate for a car or a house)
2. Causes inflation discouraging capital savings and encouraging consumption, or at least less liquid savings

5/7/2012 2:07:19 PM

shit just got real again.

Quote :

"Switzerland Wants Its Gold Back From The New York Fed Tyler Durden's picture Submitted by Tyler Durden on 03/07/2012 19:32 -0400 Bill Dudley Central Banks Commercial Real Estate Eurozone Federal Reserve Germany New York Fed Real estate Switzerland Earlier today, we reported that Germans are increasingly concerned that their gold, at over 3,400 tons a majority of which is likely stored in the vault 80 feet below street level of 33 Liberty (recently purchased by the Fed with freshly printed money at far higher than prevailing commercial real estate rates for the Downtown NY area), may be in jeopardy,and will likely soon formally inquire just how much of said gold is really held by the Fed. As it turns out, Germany is not alone: as part of the "Rettet Unser Schweizer Gold", or the “Gold Initiative”: A Swiss Initiative to Secure the Swiss National Bank’s Gold Reserves initiative, launched recently by four members of the Swiss parliament, the Swiss people should have a right to vote on 3 simple things: i) keeping the Swiss gold physically in Switzerland; ii) forbidding the SNB from selling any more of its gold reserves, and iii) the SNB has to hold at least 20% of its assets in gold. Needless the say the implications of this vote actually succeeding are comparable to the Greeks holding a referendum on whether or not to be in the Eurozone. And everyone saw how quickly G-Pap was "eliminated" within hours of making that particular threat. Yet it begs the question: how many more international grassroots outcries for if not repatriation, then at least an audit of foreign gold held by the New York Fed have to take place, before Goldman's (and New York Fed's) Bill Dudley relents? And why are the international central banks not disclosing what their people demand, if only to confirm that the gold is present and accounted for, even if it is at the Federal Reserve?"

http://www.zerohedge.com/news/switzerland-wants-its-gold-back-new-york-fed

5/7/2012 6:59:25 PM

lol zerohedge

5/7/2012 7:22:28 PM

You got a problem with zerohedge.com now?

5/7/2012 8:34:44 PM

no worse than infowars, i suppose

5/7/2012 9:51:39 PM

Pretending you know something about nothing and give any ol' opinion on it, I see. You should stick to chit chat, you're a lot funnier there.

5/7/2012 9:55:58 PM

u mad that he's stealing your gimmick?

5/7/2012 10:25:19 PM

Zerohedge is run by a guy who was banned by the SEC for insider trading. He started the blog, broke a story about his old employer Goldman to give himself some credibility, and has since been doing nothing but pulling stories out of his ass to drive up the price of gold; likely while receiving checks from the big gold dealers.

Which Ron Paul site gave you the link?

5/8/2012 9:04:58 AM

Dang... Mr Joshua does serious as well as he does funny.

5/8/2012 3:15:13 PM

I'm not even going to point out how stupid this fight is going to be if we ensue. IMstone fails to recognize a google search when he sees one. Joshua doesn't even give a goddamn name in his long biography of the site. Don't bother now because it's a google search away.


Which Ron Paul site gave me the link?

This one:

http://www.facebook.com/JudgeNapolitano/posts/148220825303220

5/8/2012 3:26:51 PM

Quote :

"Zerohedge is run by a guy who was banned by the SEC for insider trading. He started the blog, broke a story about his old employer Goldman to give himself some credibility, and has since been doing nothing but pulling stories out of his ass to drive up the price of gold; likely while receiving checks from the big gold dealers."

You don't know that. Daniel Ivandjiiski (the guy you're talking about) has been a contributor, but there's no proof that he started the blog.

Virtually all of the articles on ZH include links to what you would consider "reputable" news sites.

5/8/2012 3:29:38 PM

Quote :

"Joshua doesn't even give a goddamn name in his long biography of the site."

Lollers. I've been familiar with the site for a long time. Forgive me for not knowing his name by memory and mentioning it in my long (2 sentence) biography of the site.

5/8/2012 3:31:28 PM

5/8/2012 3:35:53 PM

Pretending you know something about nothing and give any ol' opinion on it, I see. You should stick to chit chat, you're a lot funnier there.

5/8/2012 3:39:11 PM

5/8/2012 3:42:27 PM

Here's me saying the same thing about zerohedge 6 months ago.
message_topic.aspx?topic=606738&page=25#15082663

Now post some rolly eyes.

5/14/2012 2:02:16 PM