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>What force dictates that the equilibrium for rates must be higher? Because that violates a big part of the dual mandate of the federal reserve. Lowering inter
by kadendogthing 8y ago
>What force dictates that the equilibrium for rates must be higher?
Because that violates a big part of the dual mandate of the federal reserve. Lowering interest rates indefinitely makes borrowing money super easy, and you essentially cause a credit cascade. At certain levels, borrowing money means the fed is able to print more money. But if no one can really pay that money back, that bubble pops. And if you keep lowering interest rates to correct for that you'll get inflation. Lots of inflation. To the point where the money becomes useless.
>Inflation is less of a risk now because of technology + globalization
I have quite literally never heard this thought before, and at face value it doesn't make a lick of sense. you can't just vaguely pay lipservice to two very broad terms and act like it's going to make inflation irrelevant? What?
>Finally, high interest rates imply money is scarce and that's far from the case now.
No it means that the economy shouldn't/isn't/can't really borrow more. The first one tends to be the primary reason for increasing interest rates. You can't just keep borrowing indefinitely. Because again, that makes money useless.
We're already in a bit of a pickle at the moment. And we're seeing signs that the economy is starting to slip -- but we can still reverse and put an end to these signs. Consumer and corporate credit is at an all time high. Just last quarter, the number of people that are delinquent on their car loans spiked. Car payments are something people typically let slip during a financial squeeze, because it's hard for the bank to recoup it in a timely manner. But not paying your credit card or electric bill, those kind of services get shut off immediately.
Lower interest rates allowed the current credit spike we're seeing. But at some point it has to be paid back. But if people don't have the real wages to pay back those loans AND keep spending money, you're going to see a squeeze on the service sector. And that's not going to be good for the American economy.
- autokad 8y ago> "I have quite literally never heard this thought before" I don't mean this to sound harsh, but then you haven't been listening. Its a well known established fact that technology causes 'good' deflation. The number one cited example of this is the printing press, but honestly the internet has probably been a bigger effect. globalization has also been very commonly cited as a source of lower inflation / deflation. you may disagree with it, but you should have heard about it.
- kadendogthing 8y ago>Its a well known established fact that technology causes 'good' deflation. The number one cited example of this is the printing press, I'm just going to be nice and tell you that you are severely conflating multiple issues here. Technological advancements have played literally no part in the monetary policy of the last decade. Monetary policies have largely been focused on making sure cash flow is first and foremost, present, and secondly consistent.
- autokad 8y agoI don't know what you think I could be conflating. the original post was that inflation is not as much of a risk as it use to be due to technology. ("Inflation is less of a risk now because of technology + globalization") if monetary policy is implemented by a magic 8 ball, that remains true.
- kadendogthing 8y ago>I don't know what you think I could be conflating. The motivations and effects of monetary policy? To sit there and say that a fiat system isn't subject to inflationary pressures, or even are less burdened by them, brought about changes in interest rates because of technological advancements is a hilariously misplaced idea and thing to bring up. I feel like I want to call this economic bike shedding? The tiniest detail has no sway on anything when you're talking about policies actively affecting trillions of dollars of cash and credit. We're talking in a time scale of a year, not half a century.