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> Modern economists talking about "interest rates" are talking about the base interest rate which is the cost of bank borrowing which creates new money. I find
by runeks 5y ago
> Modern economists talking about "interest rates" are talking about the base interest rate which is the cost of bank borrowing which creates new money.
I find it interesting how fundamentally this "base interest rate" has changed after transitioning away from a gold standard. During the gold standard, this interest rate was simply the short term interest rate (also called the "discount rate") and did not involve the creation of new money (gold). So, during the gold standard, it was paid out of the existing supply of money (gold), whereas now it's created out of thin air.
- CraigJPerry 5y agoCan you clarify what you mean? The discount rate was heavily manipulated during the gold standard. This is covered in depth in “Monetary Policy Under the Gold Standard, 1880 to 1914” by Bloomfield - there’s an online copy here https://fraser.stlouisfed.org/title/monetary-policy-international-gold-standard-1880-1914-6025/fulltext https://fraser.stlouisfed.org/title/monetary-policy-internat... >> did not involve the creation of new money (gold) New money was created all the time - it was supposed to be backed by an amount of gold reserve. That was the whole point. It is not disputed that this is not what happened at all times.
- imtringued 5y agoThat works until your economy stops growing, then the interest rate will not fall below liquidity preference, even though the return on capital is going down, e.g. everyone floods out of stocks into a useless shiny piece of metal. In a market with perfect competition, profits are 0%, making it impossible to pay any amount of interest. I hope people notice the absurdity of valuing a company that produces more food less than a shiny metal that lets you speculate that you can buy food with it, even beyond the point where the food manufacturer had to shut down because you didn't pay him.