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It’s as if our leaders in Washington, all highly credentialed, are standing on a beach holding their fire hoses full open, pouring more capital into an ocean of
by richcollins 14y ago
It’s as if our leaders in Washington, all highly credentialed, are standing on a beach holding their fire hoses full open, pouring more capital into an ocean of capital. We are trying to solve the wrong problem.
Perhaps this is the cause of the problem and not just a poor solution to the problem.
- dmix 14y agoIndeed, what if the prevailing Keynesian economic theory is in fact making things worse. At what point can we determine it's not helping? > The Fed has been injecting more and more capital into the economy because — at least in theory — capital fuels capitalism.
- te_chris 14y agoI thought Keynesian economics was about fiscal, not monetary stimulus like what the fed is doing? From my understanding you're confusing the two.
- deleted 14y ago[deleted]
- dmix 14y agoFair point, Keynesian monetary policy is focused on lowering interest rates and not necessarily increasing banking reserves. But lowering interest rates is still a form monetary stimulus (which is currently being employed by the fed) and is a means to inject capital into the economy.
- 001sky 14y agoOne issue people continually fail to grasp is that low rates are setting a low bar for capital investment. The result is shitty assets/investments/businesses.[1] People will only jump as high as the bar requires. Think of the analogy of your Kid: Would you set the bar low and expect the kid to excel and get into Stanford? No. Thats now how it works. Without coaching, encouragement, benchmarking, and measurement, success is the exception not the rule. Why is this so hard for DC to grasp? The empirical datapoint on this is clearly Japan in the 1990's. Ultra-low interest rates, and ultra-cheap capital might spur investment, but not <profitable> investment. Twice as much investment at 1/2 of the return on capital is not moving you anywhere. That's a major part of the problem. USA have been facing this since the Greenspan stimulus following the Dot-Com crash in the early 00's. _______ [1] This might work OK in a short run, of 6 months or a Year, but not over 3-5-10 years -- then you are talking entire capital investment life-cycles.
- epa 14y agoLow interests rate are indeed preventing investment. Althought capital is readily available for borrowing, as the article says companies already have cash on hand as it is. Higher returns are needed to boost investment. Why do you think so many funds and banks are exploring developing nations. Higher returns.
- tsotha 14y agoLow interest rates are preventing investment by people who have money, sure. But in theory they do stimulate investment in new plants and equipment. If I can borrow money for almost nothing I can build a factory to make products that are barely profitable. But the OP is right. Free money encourages waste. It encourages companies and governments to build things they can't really justify and can't afford to maintain. The real monument to Japan's lost decades is the amusement parks, golf courses, and rail lines that are crumbling because there was never enough demand to support them.
- rayiner 14y ago> Free money encourages waste. It encourages companies and governments to build things they can't really justify and can't afford to maintain But are we seeing that here in the US? Empiricism is the path to salvation my friend.