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The recent trend in interest rates, which was an increase, brought rates to the second lowest point in my 57 year lifetime. I just got a mortgage for 3-5/8%. My mortgage on my previous home 20 years ago was 7-5/8%.
The prediction that huge increases in the monetary base will cause large increases in the price level, and that big government deficits will cause big increases in interest rates, are are founded on the Austrian belief that recessions are supply-side problems, not the result of inadequate demand. Conversely, the prediction that neither of these things will happen if the economy is in a liquidity trap is a fundamental prediction of Keynesian models.
So, after five years of massive increases in the monetary base there is a low interest and low inflation environment -- the opposite of the Austrian model that vindicates Keynes, who said that in a liquidity trap large increases in deficits and the money base would cause inflation or high rates.
We are in a crisis that calls for Keynesian policies; but some conservatives in America have always opposed Keynesian thought because they believe it legitimizes an active role for government. Conceding that the government can and should create jobs would devalue the importance of being nice to businessmen, and suggest that in general the government can do good things. So the obvious diagnosis and response are unacceptable.
Look at recent interest rate trends. The lows are already starting to erode. You also completely sidestepped the points I made. How are we going to taper and unwind the fed without causing high interest rates? What economic vehicle do you suggest we use?
I don't oppose keynesian policies for political reasons. I oppose it because it is a shortsighted solution. It is a band-aid that causes more long term problems. Like most of your posts, you refuse to look at long term economic implications and seem to be comfortable looking only at short term solutions. How do we unwind the fed's balance sheet without causing inflation, and if we don't unwind, how to do prevent stagnation similar to the last several decades as seen in a country such as Japan?
Please actually address those questions instead of trying to make this political.
As a side note, you do realize that keynesian and austrian economics are not the only two options, don't you?
Look at recent interest rate trends. The lows are already starting to erode.
Ok, this is the 5-year trend on 10-year Treasuries. I see them at lows with peaks and valleys. They did rise since May with the expectation that the Fed will tapper. However, they are headed down again -- not eroding .
Quote:
Originally Posted by hnsq
You also completely sidestepped the points I made. How are we going to taper and unwind the fed without causing high interest rates? What economic vehicle do you suggest we use?
When the economy is healthy, it can withstand interests rates higher than now.
Quote:
Originally Posted by hnsq
I don't oppose keynesian policies for political reasons. I oppose it because it is a shortsighted solution. It is a band-aid that causes more long term problems. Like most of your posts, you refuse to look at long term economic implications and seem to be comfortable looking only at short term solutions. How do we unwind the fed's balance sheet without causing inflation, and if we don't unwind, how to do prevent stagnation similar to the last several decades as seen in a country such as Japan?
I'd rather deal with the problem we have at hand, unemployment, instead of the hypothetical inflation somewhere down the road. I think it's immoral to tell the unemployed that we won't use the tools at our disposal to help them because it might cause inflation in 5 years.
Housing is one economic driver, and is one that is about at a peak in this country right now...
Other than specific areas where high demand and limited supply are making headlines, I would disagree that housing prices are at a peak in general. The vast majority of locales are far below what they were before the bubble popped. Those areas that have always demanded a premium and areas where job growth is exploding are acting like they should: high demand is driving up prices. When new construction catches up those prices will moderate. Or at least flat line.
I'd rather deal with the problem we have at hand, unemployment, instead of the hypothetical inflation somewhere down the road. I think it's immoral to tell the unemployed that we won't use the tools at our disposal to help them because it might cause inflation in 5 years.
This really is the crux of the matter. And not just the unemployed, but the under employed and those nearing retirement. Those who are in opposition to current policy are functioning off of premises that will never be tested in the current economic environment. They can theorize all day, but up until now their theories have not been proven accurate predictors of what we are seeing at present. These are the same people who would have thrown the entire US auto manufacturing industry under the bus, along with an estimated 1,000,000 jobs. The same people who would have created a international crisis of confidence in the economy of the US and our willingness to address our problems. The same people who made a huge big deal about TARP funds and have ignored the fact that the US taxpayer may well earn a profit after all assets are divested and dividends plus interest are returned to the treasury. Turning a vast economic disaster into a profit is no small feat!
Ok, this is the 5-year trend on 10-year Treasuries. I see them at lows with peaks and valleys. They did rise since May with the expectation that the Fed will tapper. However, they are headed down again -- not eroding .
When the economy is healthy, it can withstand interests rates higher than now.
I'd rather deal with the problem we have at hand, unemployment, instead of the hypothetical inflation somewhere down the road. I think it's immoral to tell the unemployed that we won't use the tools at our disposal to help them because it might cause inflation in 5 years.
So (as usual) you want to solve short term problems while completely ignoring any long term implications? I think it is immoral to create an economy that is unsustainable for decades simply to help a few people right now. You seem to have a very, very difficult time looking at the broader picture regarding economic implications.
Quote:
Originally Posted by shaker281
Other than specific areas where high demand and limited supply are making headlines, I would disagree that housing prices are at a peak in general. The vast majority of locales are far below what they were before the bubble popped. Those areas that have always demanded a premium and areas where job growth is exploding are acting like they should: high demand is driving up prices. When new construction catches up those prices will moderate. Or at least flat line.
It is definitely subject for debate, but housing today looks very similar to the creation of the last housing bubble. Government sponsored risky loans are bigger than ever, and the markets have yet again embraced trading of risky mortgages. Market timing is obviously all but impossible to predict, but I don't think we can rely on housing to save the economy over the next five years.
I'd rather deal with the problem we have at hand, unemployment, instead of the hypothetical inflation somewhere down the road. I think it's immoral to tell the unemployed that we won't use the tools at our disposal to help them because it might cause inflation in 5 years.
Because all this money printing and borrowing and taxing and spending and subsidizing mortgages and so on has been SOOOOO effective at solving unemployment... right?
Because all this money printing and borrowing and taxing and spending and subsidizing mortgages and so on has been SOOOOO effective at solving unemployment... right?
Businesses do the hiring, not the Fed. You can lead a horse to water - doesn't mean he'll drink it.
Because all this money printing and borrowing and taxing and spending and subsidizing mortgages and so on has been SOOOOO effective at solving unemployment... right?
Have you got some special insight into where we would be today without the extraordinary steps the FED and government have taken? You can "prove a negative"? People point to Latvia, Estonia and Iceland as success stories for austerity. They are all having serious problems with rising unemployment, ours has fallen. Plus there are other factors (globally) affecting hiring that have nothing to do with the FED.
Last edited by shaker281; 09-25-2013 at 11:32 PM..
The idea of printing money to improve the economy makes no sense.
It devalues what money the private sector has now, and it produces "benefit" only if it's borrowed. More debt does not equal economic improvement.
The whole notion is flipping insane.
Yet, it makes sense to the smartest economists in the room. You know, the guys actually charged with the responsibility. As opposed to the armchair quarterbacks.
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