4 ms·

You have it backwards, interest rates are a function of the amount of savings available to be pooled and invested. For a variety of reasons, there is a surplus

by HiLo 11y ago

You have it backwards, interest rates are a function of the amount of savings available to be pooled and invested. For a variety of reasons, there is a surplus of savings in the world, hence low interest rates. These reasons involve deficient demand + austerity policies, as well as demographics, and foreign reserve accumulation by emerging economies.

meric 11y ago
There is too much currency chasing too little capital. If anything, with US savings down in the pits, I think saving is too low. Why is there too little capital for people to invest in? Every time the Federal Reserve lowers the interest rate or launches QE to prevent the economy from experiencing negative growth, companies producing goods the economy would not have wanted without stimulus, stays alive a little longer. As long as these companies stay in the economy, capital tied down to produce those goods cannot be used in a more productive manner. That's why each interest rate cycle has rates go lower and lower, each round of QE bigger and bigger, because the level of mal-investment is consistently growing higher and higher, and as a consequence yield is going lower and lower. Meanwhile through increasing debt and central bank policy there is more and more currency to invest with, in capital that is getting less and less productive because the capital is used for the wrong things. Those ghost cities and loss making subsidised farmers and iron ore mines aren't going to help compound growth because their yield is zero or less. They produce goods nobody really need, perpetuating deflation in goods people don't want, while the pool of goods people do want dwindles and get ever more expensive, for example, bacon.
- deleted 11y ago
  [deleted]
jazzyk 11y ago
Interest rates almost everywhere are set by central banks, not markets, as you imply ("there is a surplus of savings in the world, hence low interest rates"). What you are talking about (money chasing already-overpriced assets) is caused by near-zero interest rates, with an elite having access to low-cost leverage looking to invest that money. There is a huge problem of _debt_ in the world, government debt, private debt (if you include the student loan debt), etc. Not only is it huge, it is also growing quickly [1]. [1] http://www.forbes.com/sites/mikepatton/2014/09/29/the-seven-most-indebted-nations/ http://www.forbes.com/sites/mikepatton/2014/09/29/the-seven-...
- HiLo 11y ago
  Yes, but they're a slave to the Wicksellian rate, which is a slave to...
vegabook 11y ago
oh brother. Let's wake up here. There is a surplus of "savings" in the world because since the crisis 3.5 trillion of debt-soaking cash has been printed at off-market prices by the fed, 1.5 trillion is currently being printed by the ECB, and 3+ trillion will be printed by the BoJ. Let's please not forget those facts, which dominate any of the second/third/fourth order diversions that you've pitched here, conveniently forgetting the elephant in the room.
- HiLo 11y ago
  That's not savings tho, we have defined terms we're using here.

by HiLo 11y ago

meric 11y ago

There is too much currency chasing too little capital. If anything, with US savings down in the pits, I think saving is too low. Why is there too little capital for people to invest in? Every time the Federal Reserve lowers the interest rate or launches QE to prevent the economy from experiencing negative growth, companies producing goods the economy would not have wanted without stimulus, stays alive a little longer. As long as these companies stay in the economy, capital tied down to produce those goods cannot be used in a more productive manner. That's why each interest rate cycle has rates go lower and lower, each round of QE bigger and bigger, because the level of mal-investment is consistently growing higher and higher, and as a consequence yield is going lower and lower. Meanwhile through increasing debt and central bank policy there is more and more currency to invest with, in capital that is getting less and less productive because the capital is used for the wrong things. Those ghost cities and loss making subsidised farmers and iron ore mines aren't going to help compound growth because their yield is zero or less. They produce goods nobody really need, perpetuating deflation in goods people don't want, while the pool of goods people do want dwindles and get ever more expensive, for example, bacon.

deleted 11y ago
[deleted]

jazzyk 11y ago

Interest rates almost everywhere are set by central banks, not markets, as you imply ("there is a surplus of savings in the world, hence low interest rates"). What you are talking about (money chasing already-overpriced assets) is caused by near-zero interest rates, with an elite having access to low-cost leverage looking to invest that money. There is a huge problem of _debt_ in the world, government debt, private debt (if you include the student loan debt), etc. Not only is it huge, it is also growing quickly [1]. [1] http://www.forbes.com/sites/mikepatton/2014/09/29/the-seven-most-indebted-nations/ http://www.forbes.com/sites/mikepatton/2014/09/29/the-seven-...

HiLo 11y ago
Yes, but they're a slave to the Wicksellian rate, which is a slave to...

vegabook 11y ago

oh brother. Let's wake up here. There is a surplus of "savings" in the world because since the crisis 3.5 trillion of debt-soaking cash has been printed at off-market prices by the fed, 1.5 trillion is currently being printed by the ECB, and 3+ trillion will be printed by the BoJ. Let's please not forget those facts, which dominate any of the second/third/fourth order diversions that you've pitched here, conveniently forgetting the elephant in the room.

HiLo 11y ago
That's not savings tho, we have defined terms we're using here.