4 ms·

And what about all the "free money" being granted to those already holding a high balance? "Basic income for those with the most savings" has been one of my fa

by bfdm 3y ago

And what about all the "free money" being granted to those already holding a high balance? "Basic income for those with the most savings" has been one of my favourite framinga for interest rates.

hgomersall 3y ago
The interest-price spiral nobody ever talks about.
- imtringued 3y ago
  The amusing part is that depending on the economic model some do predict that there will be inflation in exact proportion to the interest rate. I am convinced that if you have a 100% free capital market with no coercion, then in theory the interest rate will just reflect capital scarcity and be a reward for possessing something many people want and that needs to be allocated to the highest bidder, but if it turns out that such a free market is a fantasy, then there is something to the interest causes inflation argument in real life simply because a responsible government that has the option to pay interest or not, could use the savings to pay off even more debt. The interest payments have to circulate once through the economy and this generates additional demand which can lead to inflation.
  - hgomersall 3y ago
    In truth, nobody has any idea how interest rates affect inflation. It's a combination of dogma, wishful thinking and a lack of options that lead to the central banks using monetary policy to try to reduce inflation. The central banks should never have been made "independent" let alone given the responsibility of controlling inflation. It's a political cop-out.
freitzkriesler2 3y ago
Interest rates at the Fed do not dictate the interest rates you get in your personal checking account. It's loosely linked yes but a 7% fed funds rate and industry collusion mean you'll never get more than 1-2% on a checking / savings account. I mean yeah there are a few banks out there with 4.5% on savings accounts so you can use those.
- dragontamer 3y ago
  Then move your money into an MMF, like Vanguard's VMFXX or Schwab's SWVXX. There's plenty of ways for even the poorest to get direct exposure to 5% interest rates.
tick_tock_tick 3y ago
> And what about all the "free money" being granted to those already holding a high balance? Not enough people have that for it too matter. The rich getting richer doesn't cause any real inflation but the masses getting a couple of checks does. It's all a numbers game.
Rury 3y ago
Not many people have a high balance, and those who are, are getting the short end of the stick. Contrary to what common wisdom would lead you to believe, rich people don't usually hold a high balance. In fact, rich people are often highly indebted and hoard wealth through other means. They're good at using debt to accrue wealth, and reducing having to repay debts (just see our government). Rich people are like this guy: https://www.youtube.com/watch?v=r0HX4a5P8eE https://www.youtube.com/watch?v=r0HX4a5P8eE We're a nation of bail outs and tax breaks for people in debt (ie bailouts for the rich!).
- imtringued 3y ago
  What you are saying is that there is some implicit transfer of money from the rich to the poor. If that is the case why worry about inequality or unemployment? Why are there well off people ascribing to Austrian economics who insist on saving money instead of assets? I question this idea because it makes no sense to me. 1. because those rich people who currently hold stocks will switch to interest bearing accounts the moment it makes sense, so looking at what they do today isn't enough. 2. because for rich people to buy overpriced stocks off poor people, those people would have to own stocks in the first place. 3. There is significant evidence that major companies are net lenders and therefore their owners are also indirect net lenders. 4. Rich people have more of everything, including money. There is not much data about it but there is data about cash holding and it shows a simple relationship of rich people having more cash, duh. https://www.bundesbank.de/resource/blob/854038/6a6978bac2e4df421960ab5414ba0c4e/mL/bargeldverwendung-in-deutschland-2020-data.pdf https://www.bundesbank.de/resource/blob/854038/6a6978bac2e4d... Page 19 5. Poor people's most valuable asset is their own healthy body and mind which is a highly illiquid asset. If you ignore this asset it will look like poor people keep the vast vast majority of their wealth as money, which is true but also misleading because having a job is a much greater source of income for them which is not worth giving up for a few percent of interest. Of course I am assuming excessive interest rates here, high enough to cause widespread unemployment, but the rich do want them and they don't care if people end up unemployed.
  - Rury 3y ago
    >What you are saying is that there is some implicit transfer of money from the rich to the poor No, I'm saying that who you think is rich and poor isn't so black and white. Think about it for a moment. If you could borrow something, and then never pay back what you borrowed, you'd in fact end up gaining wealth... In other words, I'm saying that the rich more often use debt as leverage to acquire assets, and then work to pay back less in real terms what they owe (essentially nudging their borrowing a fraction closer to stealing), than they acquire wealth by scrimping and saving/lending. Sure they might lend once they have acquired wealth, but they don't initially acquire their wealth that way (it's way too slow). Governments do this anytime they choose to inflate their debts away. Instead of paying back in real terms what they owe, they bail themselves out with printed money reducing their debt burden. But the principle also happens in the stock market with derivatives (such as with a gamma squeeze for one example), and with mortgages and renting amongst other things. Additionally, if you work to look... tax schemes are debt favored. This is particularly true when it comes to corporate taxes, as debt financing is tax deductible, but dividend payments are not: https://www.imf.org/external/pubs/ft/sdn/2011/sdn1111.pdf https://www.imf.org/external/pubs/ft/sdn/2011/sdn1111.pdf And lest not mention how interest rates where near 0% for over a decade. Who do you think that benefits? People with lots of debt - and the greater the debt the greater the benefit.

by bfdm 3y ago

And what about all the "free money" being granted to those already holding a high balance? "Basic income for those with the most savings" has been one of my favourite framinga for interest rates.

hgomersall 3y ago

The interest-price spiral nobody ever talks about.

imtringued 3y ago
The amusing part is that depending on the economic model some do predict that there will be inflation in exact proportion to the interest rate. I am convinced that if you have a 100% free capital market with no coercion, then in theory the interest rate will just reflect capital scarcity and be a reward for possessing something many people want and that needs to be allocated to the highest bidder, but if it turns out that such a free market is a fantasy, then there is something to the interest causes inflation argument in real life simply because a responsible government that has the option to pay interest or not, could use the savings to pay off even more debt. The interest payments have to circulate once through the economy and this generates additional demand which can lead to inflation.
- hgomersall 3y ago
  In truth, nobody has any idea how interest rates affect inflation. It's a combination of dogma, wishful thinking and a lack of options that lead to the central banks using monetary policy to try to reduce inflation. The central banks should never have been made "independent" let alone given the responsibility of controlling inflation. It's a political cop-out.

freitzkriesler2 3y ago

Interest rates at the Fed do not dictate the interest rates you get in your personal checking account. It's loosely linked yes but a 7% fed funds rate and industry collusion mean you'll never get more than 1-2% on a checking / savings account. I mean yeah there are a few banks out there with 4.5% on savings accounts so you can use those.

dragontamer 3y ago
Then move your money into an MMF, like Vanguard's VMFXX or Schwab's SWVXX. There's plenty of ways for even the poorest to get direct exposure to 5% interest rates.

tick_tock_tick 3y ago

> And what about all the "free money" being granted to those already holding a high balance? Not enough people have that for it too matter. The rich getting richer doesn't cause any real inflation but the masses getting a couple of checks does. It's all a numbers game.

Rury 3y ago

Not many people have a high balance, and those who are, are getting the short end of the stick. Contrary to what common wisdom would lead you to believe, rich people don't usually hold a high balance. In fact, rich people are often highly indebted and hoard wealth through other means. They're good at using debt to accrue wealth, and reducing having to repay debts (just see our government). Rich people are like this guy: https://www.youtube.com/watch?v=r0HX4a5P8eE https://www.youtube.com/watch?v=r0HX4a5P8eE We're a nation of bail outs and tax breaks for people in debt (ie bailouts for the rich!).

imtringued 3y ago
What you are saying is that there is some implicit transfer of money from the rich to the poor. If that is the case why worry about inequality or unemployment? Why are there well off people ascribing to Austrian economics who insist on saving money instead of assets? I question this idea because it makes no sense to me. 1. because those rich people who currently hold stocks will switch to interest bearing accounts the moment it makes sense, so looking at what they do today isn't enough. 2. because for rich people to buy overpriced stocks off poor people, those people would have to own stocks in the first place. 3. There is significant evidence that major companies are net lenders and therefore their owners are also indirect net lenders. 4. Rich people have more of everything, including money. There is not much data about it but there is data about cash holding and it shows a simple relationship of rich people having more cash, duh. https://www.bundesbank.de/resource/blob/854038/6a6978bac2e4df421960ab5414ba0c4e/mL/bargeldverwendung-in-deutschland-2020-data.pdf https://www.bundesbank.de/resource/blob/854038/6a6978bac2e4d... Page 19 5. Poor people's most valuable asset is their own healthy body and mind which is a highly illiquid asset. If you ignore this asset it will look like poor people keep the vast vast majority of their wealth as money, which is true but also misleading because having a job is a much greater source of income for them which is not worth giving up for a few percent of interest. Of course I am assuming excessive interest rates here, high enough to cause widespread unemployment, but the rich do want them and they don't care if people end up unemployed.
- Rury 3y ago
  >What you are saying is that there is some implicit transfer of money from the rich to the poor No, I'm saying that who you think is rich and poor isn't so black and white. Think about it for a moment. If you could borrow something, and then never pay back what you borrowed, you'd in fact end up gaining wealth... In other words, I'm saying that the rich more often use debt as leverage to acquire assets, and then work to pay back less in real terms what they owe (essentially nudging their borrowing a fraction closer to stealing), than they acquire wealth by scrimping and saving/lending. Sure they might lend once they have acquired wealth, but they don't initially acquire their wealth that way (it's way too slow). Governments do this anytime they choose to inflate their debts away. Instead of paying back in real terms what they owe, they bail themselves out with printed money reducing their debt burden. But the principle also happens in the stock market with derivatives (such as with a gamma squeeze for one example), and with mortgages and renting amongst other things. Additionally, if you work to look... tax schemes are debt favored. This is particularly true when it comes to corporate taxes, as debt financing is tax deductible, but dividend payments are not: https://www.imf.org/external/pubs/ft/sdn/2011/sdn1111.pdf https://www.imf.org/external/pubs/ft/sdn/2011/sdn1111.pdf And lest not mention how interest rates where near 0% for over a decade. Who do you think that benefits? People with lots of debt - and the greater the debt the greater the benefit.