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Does a "real interest rate" per your definition actually exist? Googling the term returns an inflation-adjusted interest rate. In theory if we didn't have cent

Does a "real interest rate" per your definition actually exist? Googling the term returns an inflation-adjusted interest rate. In theory if we didn't have central banks this might be possible. However, central banks "print" money to adjust short-term interest rates that are a lever for influencing demand for money. It seems unlikely that it is possible to decouple supply from demand in the real world.

Consultant32452 9y ago
In this case I think "real" interest rate means a rate derived in the free market, rather than at the whim of central planners (fed).
- YPCrumble 9y ago
  My point is that the notion of a "real" interest rate as defined doesn't exist. The idea of a currency that cannot be manipulated is a chimera. Here are two reasons: 1. Currencies are created by some government or government-equivalent (e.g., maintainers of bitcoin/bitcoin fork), and these governors set the supply of currency. Sometimes they use interest rates, sometimes they just print more currency, sometimes they set a schedule for mining digital currency, it doesn't matter. However, the "free market" is inherently manipulated by the "owner" or "creator" of the currency. 2. If you consider a "commodity-currency" like gold or diamonds (or probably bitcoins) whose supply is not determined by a central authority, these commodity-currencies can also be manipulated. In fact, without the check of a government, capitalism works in such a way that these commodities become centralized into a few large holders who are incentivized to manipulate the currency. This is why governments like to get off of the gold standard, so they can manipulate their currency without interference from other governments.
nine_k 9y ago
> Does a "real interest rate" per your definition actually exist? Googling the term returns an inflation-adjusted interest rate. > In theory if we didn't have central banks this might be possible. However, central banks "print" money to adjust short-term interest rates that are a lever for influencing demand for money. It seems unlikely that it is possible to decouple supply from demand in the real world. With gold standard, central banks could not directly print money. It was abandoned by the US about 40 years ago, and by Europe, even earlier (because world wars).
- YPCrumble 9y ago
  The gold standard gets abandoned because countries want to manipulate their currency independently of the impact of other countries' currency manipulation. This is sometimes because they want to pay for costly wars via currency manipulation, but that's not the only reason.
- Retric 9y ago
  You can still manipulate a gold standard it just takes more effort. EX: This coin represents 2% less gold every year.
  - nine_k 9y ago
    Then prices include the weight, not the nominal value. Also, it's a lot of effort. You can also lower the content of gold in coins, but the process of remaking existing coins would be quite expensive. Paper money is much easier in this regard.
    - Retric 9y ago
      It may sound odd, but gold coins are not on the gold standard. The gold content represented a value floor, but their value should exceed that, or they would have just used bars not coins. If nothing else they where less likely to be fake. Gold standard only really refers to paper money which was used as a proxy for actual gold. Arguably it's even preferable to physical coins as historicly people would often clip them.
wdn 9y ago
Bank no longer need customer’s money. If I record correctly, bank can borrow from the Fed and turn around and leverage up and buy bonds and notes. Basically risk free money for banks.
- runeks 9y ago
  A commercial bank needs some sort of collateral, e.g. customer deposits, in order to borrow money from the central bank.
exHFguy2 9y ago
"Real" means inflation adjusted in the economics and finance world. Let's call it a "True" interest rate. Central banks directly influence the shorter end of the yield curve. They can influence the longer end only indirectly.
HappyRobot 9y ago
> Does a "real interest rate" per your definition actually exist? I think the closest measure we have is the difference between the interest rates banks charge from loans compared against the "overnight rate" of interbank lending. This is controlled by the fed (through the federal funds rate) and is another control the fed has to control interest rates. If I remember correctly, one of the hindrances for the 2008 recession recovery was that the interest rates (offered by banks) remained high as the fed lowered the federal funds rate. The goal of the rate is to control lending and in that recession it was not working.

Consultant32452 9y ago

In this case I think "real" interest rate means a rate derived in the free market, rather than at the whim of central planners (fed).

YPCrumble 9y ago
My point is that the notion of a "real" interest rate as defined doesn't exist. The idea of a currency that cannot be manipulated is a chimera. Here are two reasons: 1. Currencies are created by some government or government-equivalent (e.g., maintainers of bitcoin/bitcoin fork), and these governors set the supply of currency. Sometimes they use interest rates, sometimes they just print more currency, sometimes they set a schedule for mining digital currency, it doesn't matter. However, the "free market" is inherently manipulated by the "owner" or "creator" of the currency. 2. If you consider a "commodity-currency" like gold or diamonds (or probably bitcoins) whose supply is not determined by a central authority, these commodity-currencies can also be manipulated. In fact, without the check of a government, capitalism works in such a way that these commodities become centralized into a few large holders who are incentivized to manipulate the currency. This is why governments like to get off of the gold standard, so they can manipulate their currency without interference from other governments.

nine_k 9y ago

> Does a "real interest rate" per your definition actually exist? Googling the term returns an inflation-adjusted interest rate. > In theory if we didn't have central banks this might be possible. However, central banks "print" money to adjust short-term interest rates that are a lever for influencing demand for money. It seems unlikely that it is possible to decouple supply from demand in the real world. With gold standard, central banks could not directly print money. It was abandoned by the US about 40 years ago, and by Europe, even earlier (because world wars).

YPCrumble 9y ago
The gold standard gets abandoned because countries want to manipulate their currency independently of the impact of other countries' currency manipulation. This is sometimes because they want to pay for costly wars via currency manipulation, but that's not the only reason.
Retric 9y ago
You can still manipulate a gold standard it just takes more effort. EX: This coin represents 2% less gold every year.
- nine_k 9y ago
  Then prices include the weight, not the nominal value. Also, it's a lot of effort. You can also lower the content of gold in coins, but the process of remaking existing coins would be quite expensive. Paper money is much easier in this regard.
  - Retric 9y ago
    It may sound odd, but gold coins are not on the gold standard. The gold content represented a value floor, but their value should exceed that, or they would have just used bars not coins. If nothing else they where less likely to be fake. Gold standard only really refers to paper money which was used as a proxy for actual gold. Arguably it's even preferable to physical coins as historicly people would often clip them.

wdn 9y ago

Bank no longer need customer’s money. If I record correctly, bank can borrow from the Fed and turn around and leverage up and buy bonds and notes. Basically risk free money for banks.

runeks 9y ago
A commercial bank needs some sort of collateral, e.g. customer deposits, in order to borrow money from the central bank.

exHFguy2 9y ago

"Real" means inflation adjusted in the economics and finance world. Let's call it a "True" interest rate. Central banks directly influence the shorter end of the yield curve. They can influence the longer end only indirectly.

HappyRobot 9y ago

> Does a "real interest rate" per your definition actually exist? I think the closest measure we have is the difference between the interest rates banks charge from loans compared against the "overnight rate" of interbank lending. This is controlled by the fed (through the federal funds rate) and is another control the fed has to control interest rates. If I remember correctly, one of the hindrances for the 2008 recession recovery was that the interest rates (offered by banks) remained high as the fed lowered the federal funds rate. The goal of the rate is to control lending and in that recession it was not working.