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> roughly what the price should be Why do you feel they are declaring what the price should be? Aren't they basically saying "if you buy this note we'll give

by nkurz 6y ago

> roughly what the price should be Why do you feel they are declaring what the price should be? Aren't they basically saying "if you buy this note we'll give you X dollars in Y years"? Is it the way the interest is handled that defines the "rough price"? Or are there "reserve prices" and the like that I don't know about? > The price I pay for my laptops isn't at all controlled by what Apple thinks the price of a laptop should be. That feels really backwards to me, unless you mean that you never buy from Apple? I feel like the price of a MacBook is entirely determined Apple: they set the price, the market determines how many to buy, and they try manufacture and sell this number. If they feel they can make more money at a different price, they set a different price in the future. Contrast this with an auction, where the number of items is fixed and the market determines the price. I can see arguing that whether the market is "free" is independent of which pricing mechanism is used, but I can't see how one can argue that Apple doesn't determine the price that their laptops sell for. (I'm ignorant of many economic theories. I assume your views fit into some theory that I'm unfamiliar with. Please take my response as a request for more information about this theory rather than any sort of accusation.)

roenxi 6y ago
> Why do you feel they are declaring what the price should be? Aren't they basically.... The 'we'll give you X dollars in Y years' that is (notionally) written on the bonds isn't the important part of the process. If you auction a bond it doesn't matter what interest rate the bond is nominally at, traders will bid for the bond such that the coupon it pays is (market interest rate%) of the actual price bid. Eg, here is a reasonable view of the market for Australian government bonds [0] which I'm more familiar with. If you look at the bid column you'll see that nobody is bidding $100 for bonds, even though all the bonds are nominally $100. The same dynamic will be seen at a central bank auction. I feel they are declaring what the price will be because central banks will typically have press releases saying "we will target an interest rate of X%". Then the market fairly reliably settles on some interest rate that is quite close to what was declared. It isn't related to the fact that they hold auctions; the auctions are irrelevant. An auction doesn't prove or disprove anything about whether the market is free. The central banks are taking actions to influence the interest rate and they aren't at all governed by market forces - the market for interest rates is a controlled market. > I feel like the price of a MacBook is entirely determined Apple... If it were entirely determined by Apple then the prices would be in the billions. The floor on the price of a Macbook is entirely determined by Apple, the ceiling is controlled by the customers. And both parties can be swapped out (Apple for, eg, HP and consumers are basically a faceless interchangeable mass) if the other thinks there are better alternatives. For interest rates the floor and the ceiling are controlled by central banks, as can be observed by noting the "state target" -> "achieve target" pattern in central bank declarations and what the interest rate then does. It is a market, but it isn't free. [0] https://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND https://www.asx.com.au/asx/markets/interestRateSecurityPrice...

by nkurz 6y ago

roenxi 6y ago

> Why do you feel they are declaring what the price should be? Aren't they basically.... The 'we'll give you X dollars in Y years' that is (notionally) written on the bonds isn't the important part of the process. If you auction a bond it doesn't matter what interest rate the bond is nominally at, traders will bid for the bond such that the coupon it pays is (market interest rate%) of the actual price bid. Eg, here is a reasonable view of the market for Australian government bonds [0] which I'm more familiar with. If you look at the bid column you'll see that nobody is bidding $100 for bonds, even though all the bonds are nominally $100. The same dynamic will be seen at a central bank auction. I feel they are declaring what the price will be because central banks will typically have press releases saying "we will target an interest rate of X%". Then the market fairly reliably settles on some interest rate that is quite close to what was declared. It isn't related to the fact that they hold auctions; the auctions are irrelevant. An auction doesn't prove or disprove anything about whether the market is free. The central banks are taking actions to influence the interest rate and they aren't at all governed by market forces - the market for interest rates is a controlled market. > I feel like the price of a MacBook is entirely determined Apple... If it were entirely determined by Apple then the prices would be in the billions. The floor on the price of a Macbook is entirely determined by Apple, the ceiling is controlled by the customers. And both parties can be swapped out (Apple for, eg, HP and consumers are basically a faceless interchangeable mass) if the other thinks there are better alternatives. For interest rates the floor and the ceiling are controlled by central banks, as can be observed by noting the "state target" -> "achieve target" pattern in central bank declarations and what the interest rate then does. It is a market, but it isn't free. [0] https://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND https://www.asx.com.au/asx/markets/interestRateSecurityPrice...