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> Incidentally, foreigners have awesome faith in the US government, as evidenced by the fact that interest rates are as low as they have ever been, and -- frigh

by anamax 16y ago

> Incidentally, foreigners have awesome faith in the US government, as evidenced by the fact that interest rates are as low as they have ever been, and -- frighteningly -- perhaps as low as they can be. Interest rates reflect relative opportunities, not absolute value. The fact that the US is seen as a better investment than, say, China, does not tell you that the US is a good investment. > "zero lower bound". 0 is not a lower bound for interest rates. You can loan someone $100 today in return for $90 in ten years. If you're trying to get folks to do something with the money that they borrowed, there are other levers. Or, you could just loan it to different people.

cynicalkane 16y ago
0 is a lower bound for interest rates because almost nobody would make that loan. The "rational actor" theory has some flaws, but it's a safe economic assumption that actors are rational enough to not throw away money like that.
- mechanical_fish 16y ago
  Though, in fact, the US government can loan people $100 in exchange for $90 in ten years. Or, equivalently, they can print $10 bills and hand them out to people. Simpler that way. In practice, of course, it is preferable to give people jobs to do in exchange for their $10 bills, like fixing our broken roads or sewers, or building nice public infrastructure. That way we keep our workers and factories in practice, and we don't waste productive capacity, and we distribute the money according to fair rules, and we get some nicely paved streets. But when you have to stimulate the economy and you're desperate you could literally "fire up the helicopter" (as the metaphor goes) and start dropping dollar bills from the sky. Unfortunately, the Federal Reserve may not be able to do this. Deficit spending takes an act of Congress, and for various terrifying structural and political reasons the US Congress has punted on the problem of managing the economy.
MaysonL 16y ago
Interestingly, recently 2 year Treasury TIPS (Inflation Protected Securities) were yielding -0.02%. see: http://krugman.blogs.nytimes.com/2010/08/11/why-we-need-an-inflation-target/ http://krugman.blogs.nytimes.com/2010/08/11/why-we-need-an-i...

by anamax 16y ago

cynicalkane 16y ago

0 is a lower bound for interest rates because almost nobody would make that loan. The "rational actor" theory has some flaws, but it's a safe economic assumption that actors are rational enough to not throw away money like that.

mechanical_fish 16y ago
Though, in fact, the US government can loan people $100 in exchange for $90 in ten years. Or, equivalently, they can print $10 bills and hand them out to people. Simpler that way. In practice, of course, it is preferable to give people jobs to do in exchange for their $10 bills, like fixing our broken roads or sewers, or building nice public infrastructure. That way we keep our workers and factories in practice, and we don't waste productive capacity, and we distribute the money according to fair rules, and we get some nicely paved streets. But when you have to stimulate the economy and you're desperate you could literally "fire up the helicopter" (as the metaphor goes) and start dropping dollar bills from the sky. Unfortunately, the Federal Reserve may not be able to do this. Deficit spending takes an act of Congress, and for various terrifying structural and political reasons the US Congress has punted on the problem of managing the economy.

MaysonL 16y ago

Interestingly, recently 2 year Treasury TIPS (Inflation Protected Securities) were yielding -0.02%. see: http://krugman.blogs.nytimes.com/2010/08/11/why-we-need-an-inflation-target/ http://krugman.blogs.nytimes.com/2010/08/11/why-we-need-an-i...