Posted tagged ‘The Obsession With Low Interest rates.’

Some Econ Homework

July 16, 2019

Austrian Business Cycle Theory, Explained, by Murry N. Rothbard, at mises.org. This is a short explanation of the boom-bust cycle that is created by monetary intervention into the free market via bank credit expansion. Excerpt from the article:

…bank credit expansion sets into motion the business cycle in all its phases: the inflationary boom, marked by expansion of the money supply and by malinvestment; the crisis, which arrives when credit expansion ceases and malinvestments become evident; and the depression recovery, the necessary adjustment process by which the economy returns to the most efficient ways of satisfying consumer desires.

Keynesian Fake News In The Wall Street Journal, by Daniel J. Mitchell, at mises.org. Government spending will not stimulate the economy. Government can only spend what it takes from the private sector. There is only a transfer of how the private sector would allocate its production, to government politicians and bureaucrats who will allocate their newly confiscated production according to what they value. Government doesn’t produce anything that it can exchange for money. It can only confiscate private sector production. The transfer via taxes is a transfer of something for nothing. It is not only theft, it is a reduction of wealth.

Why Socialism Must Fail, by Hans Hermann Hoppe, at mises.org. Excerpt from the article:

Socialism and capitalism offer radically different solutions to the problem posed by scarcity: everybody can’t have everything they want when they want it, so how can we effectively decide who will own and control the resources we have? The chosen solution has profound implications. It can mean the difference between prosperity and impoverishment,

“The United States is not fully socialized, but already we see the disastrous effects of a politicized society as our own politicians continue to encroach on the rights of private property owners. All the impoverishing effects of socialism are with us in the U.S.: reduced levels of investment and saving, the misallocation of resources, the overutilization and vandalization of factors of production, and the inferior quality of products and services. And these are only tastes of life under total socialism.”

When Will The Stock Market Respond to 2016’s Liquidity Collapse? by Frank Shostak, at mises.org. Intervention into the free market via lower interest rates and an increase of the money supply leads to artificial booms and all to real busts. If the Fed is to keep the Stock Market from correcting the Feds previous monetary expansion, it has to lower interest rates.

Social Pressure vs. Consumer Preferences, by Joakim Book, at mises.org. Excerpt from the article:

“Indeed, on a more fundamental economic level, this is the logical conclusion of division of labor. Taking information from others is how we survive in large-scale complex market societies. This is easy to see when discussing a broken car or leaking pipes: you could probably learn how to fix those pipes yourself and develop your car mechanic skills to be able to repair the car, but it would likely take much more time, effort and money than you’re willing to part with — hiring a specialist makes economic sense. Similarly, you can think of relying on others’ tastes when it comes to music or food flavors or TV shows to be a trove of useful information, deflated appropriately by how much you tend to like what others like.”

What’s Up With The Obsession About Low Interest Rates, by Mark J. Perry, at carpediemblog. Excerpt from the article:

“Raising/lowering prices, wages, or interest rates can only benefit one half of the market (buyers or sellers, workers or employers, borrowers or savers, but not both) and those benefits come at the direct expense of the other half of the market (buyers/sellers, workers/employers, borrowers/savers). In other words, it’s is zero-sum outcome that redistributes gains and losses, but without any net gains, similar to the Keynesian stimulus fallacy illustrated below.”

So what’s with the obsession, especially the political obsession, with lower interest rates that are guaranteed to do great harm to savers while benefiting borrowers?”

“The answer must be that there’s a much greater political short-run payoff from lower interest rates than from higher interest rates. That is, borrowers (including corporations) must have a louder and more organized political influence than disorganized savers. In that case, aren’t lower interest rates a form of legal plunder and crony capitalism that allow borrowers to take advantage of savers enabled by easy monetary policy by the Fed?”

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