investment and low interest

[piezoe]

Quote from morganist:

good post. do you agree that low interest is not a good thing then.

I don't know. I only have my own observations of what has occurred in reality, and the opinions of economists whose writings i read. I am not qualified to discuss complex economic theory.

I will say this, and that is that Greenspan is an enigma to me. He was Keynesian whenever it suited his predilections and quite obvious political bias, but he was old school when it came to regulation and oversight. This proved to be a disastrous combination.

The "Greenspan Doctrine" that markets are best left to their own devices and given enough freedom will self-correct excesses, is dead and buried. Good riddance I say!

Since the idea of unbridled capitalism had been discredited in both the 19th and early twentieth centuries, why on earth did Greenspan persist in ignoring reality in the face of all the facts at his command and all the warnings of his colleagues. I am left with no other conclusion than he was either an academic dolt ignorant of US economic history, or he is criminally liable. Since the former is unthinkable in a Fed Chairman, I think the latter is most likely.

And one final thought. The fundamental problem in the US, and this is not my ldea but it is an obvious conclusion of economists of just about any bent, is that US consumption outstrips US production and the balance is made up by borrowing and printing. That is what must change if the economy is to be put back on a sustainable track. Either productivity must increase or living standards must decrease.

As it would be easy to get the impression from what I have written that I disdain capitalism, I should add that I am a capitalist through and through. I just don't see how capitalism can survive and flourish without wise regulation. Ironically we had just about all the regulation we needed already in place until Phil Gramm and his cronies wrecked the CFTC and the Glass-Spiegal Act. The one thing missing was regulation of credit default swaps, which would have not caused a problem had they been regulated as insurance polices, which is what they are. Greenspan had virtually all the tools he needed: margin rates, mortgage regs, reserve requirements, and the far reaching influence of the Fed, and he didn't use a damn one of them!

We don't need more regulation so much as we need to properly use what we have (or had.)

 

[morganist]

Quote from piezoe:

I don't know. I only have my own observations of what has occurred in reality, and the opinions of economists whose writings i read. I am not qualified to discuss complex economic theory.

I will say this, and that is that Greenspan is an enigma to me. He was Keynesian whenever it suited his predilections and quite obvious political bias, but he was old school when it came to regulation and oversight. This proved to be a disastrous combination.

The "Greenspan Doctrine" that markets are best left to their own devices and given enough freedom will self-correct excesses, is dead and buried. Good riddance I say!

Since the idea of unbridled capitalism had been discredited in both the 19th and early twentieth centuries, why on earth did Greenspan persist to ignore reality in the face of all the facts at his command and all the warnings of his colleagues. I am left with no other conclusion than he was either an academic dolt ignorant of US economic history, or he is criminally liable. Since the former is unthinkable in a Fed Chairman, I think the latter is most likely.

And one final thought. The fundamental problem in the US, and this is not my ldea but it is an obvious conclusion of economists of just about any bent, is that US consumption outstrips US production and the balance is made up by borrowing and printing. That is what must change if the economy is to be put back on a sustainable track. Either productivity must increase or living standards must decrease.

i agree with that last comment. like i say it needs a paradigm shift for it to happen. perhaps reducing advertising and rationing certain goods.

i feel the government has been childish trying to give people what they want to stay in power rather than doing what is needed.

 

[piezoe]

Morganist, you are too fast for me. Please see my edit above.

Perhaps the solution you seek is impossible without some fundamental changes in human nature, or else the political system.

 

[morganist]

i think it is called the glass steagall act i think spiegel is a type of dog.

any way what i think will happen is that people will have to change because of the situation so will conform. however will that be too late. what i am sure about is politicians have sold us out to get power by letting people have what they want rather than being realistic.

if it is of any consolation. i have devised alternatives to control inflation and banking.

whether it will be implemented is any ones guess. also they cannot just drop the debt like some think here they will have no way of controlling demand. they cannot use interest.

 

[splinter7]

The general question: Is low interest bad?

Interest affects return on investment and the rate at which one can barrow.
Low interest relative to what it recently has been is not bad when the economy is making a shift (cyclical or structural) to make gains from economies of scale that would no longer require low barrowing rates. Or if it is used in a poor economy. Overcoming a shift/contractionary cycle requires new investment which comes from barrowing. The investors don't usually make up the actual business, its just normal people who have an idea. If the rate is low likely the idea doesn't have to be on the level of a microchip, it could be as simple as a new cookie, a store, etc.

Not just the business sector benefits. Really, what else is there except the government sector which, imo, shouldn't exist if everything ran properly all the time. The government sector benefits by the scalar gains as they consume end products just like the business sector. For example, investment with low barrowing rates would make the bids for government contracts lower or more competitive and would trickle to the individual as lower prices for products and more efficient use of tax money.

Plus, think about it like this. The market interest rate is what people will get unless they take on additional risk. So when there is the low interest rate where people are barrowing at the low rate there is little risk that it will go down. More likely to go up (historically). Less percieved risk for barrowing to reinvest. More people would want to barrow, so better projects compete for the money to provide the best margins which eventually will compete the interest rate upwards.

Investors could wait a week or 2 to hold off in investing as they look for a better deal, but they are losing ground during this time. The interest rate does fluctuate wildly and so there is only loss as the investor holds his capital especially if they are waiting years for a better interest rate. They have to invest at the market rate or take on lots of risk, otherwise they lose the keep up with the Joneses time-value game.

I think US did this in the 70s where thye raised the inflation rate at the time of recession. I think they got a double recession as no one could/would barrow.

In terms of supply and demand high rate means that money is hard to come by, it is in low supply or high demand. Low rate is means that money is in low demand or high supply. In other words, no one wants to barrow (likely because of the lack of potential in the market for there business).


How do you propose to encourage people to barrow?

We need risk takers. though 2/3 fail, the 1/3 that succeed employ us and shape our economy.

The problem with I think some are caught up with is that the news says people need access to funds, but which people are they talking about. No one is going ot give money to people who cant even manage their own lives properly. Shoot, you can't get a good job without good credit. They don't want knuckleheads.

Pensioners will have to bare the market if that is how they are positioned. The ones who have a fixed income lose with high inflation/interest, the ones who have market based returns will lose with low interest. Not everyone loses, but someon has to lose for others to win.

The interest rate is not useful, the market rate of inflation/interest is not the tool. Its the outcome of using tools combined with what the global markets will allow.

The point of economics is not to help people, it's to make good efficient decisions. that is what economics is, studying decisions.

WHen people say "the economics of the situation" they mean the parameters/indicators that affect my decision.

Based on your dislike of low interest I assume you like inflation. But as the market inflate and your stock portfolio numbers inflate, you didn't necessarily become richer, same for deflation.

 

[morganist]

Quote from splinter7:

The general question: Is low interest bad?

Interest affects return on investment and the rate at which one can barrow.
Low interest relative to what it recently has been is not bad when the economy is making a shift (cyclical or structural) to make gains from economies of scale that would no longer require low barrowing rates. Or if it is used in a poor economy. Overcoming a shift/contractionary cycle requires new investment which comes from barrowing. The investors don't usually make up the actual business, its just normal people who have an idea. If the rate is low likely the idea doesn't have to be on the level of a microchip, it could be as simple as a new cookie, a store, etc.

Not just the business sector benefits. Really, what else is there except the government sector which, imo, shouldn't exist if everything ran properly all the time. The government sector benefits by the scalar gains as they consume end products just like the business sector. For example, investment with low barrowing rates would make the bids for government contracts lower or more competitive and would trickle to the individual as lower prices for products and more efficient use of tax money.

Plus, think about it like this. The market interest rate is what people will get unless they take on additional risk. So when there is the low interest rate where people are barrowing at the low rate there is little risk that it will go down. More likely to go up (historically). Less percieved risk for barrowing to reinvest. More people would want to barrow, so better projects compete for the money to provide the best margins which eventually will compete the interest rate upwards.

Investors could wait a week or 2 to hold off in investing as they look for a better deal, but they are losing ground during this time. The interest rate does fluctuate wildly and so there is only loss as the investor holds his capital especially if they are waiting years for a better interest rate. They have to invest at the market rate or take on lots of risk, otherwise they lose the keep up with the Joneses time-value game.

I think US did this in the 70s where thye raised the inflation rate at the time of recession. I think they got a double recession as no one could/would barrow.

In terms of supply and demand high rate means that money is hard to come by, it is in low supply or high demand. Low rate is means that money is in low demand or high supply. In other words, no one wants to barrow (likely because of the lack of potential in the market for there business).


How do you propose to encourage people to barrow?

We need risk takers. though 2/3 fail, the 1/3 that succeed employ us and shape our economy.

The problem with I think some are caught up with is that the news says people need access to funds, but which people are they talking about. No one is going ot give money to people who cant even manage their own lives properly. Shoot, you can't get a good job without good credit. They don't want knuckleheads.

Pensioners will have to bare the market if that is how they are positioned. The ones who have a fixed income lose with high inflation/interest, the ones who have market based returns will lose with low interest. Not everyone loses, but someon has to lose for others to win.

The interest rate is not useful, the market rate of inflation/interest is not the tool. Its the outcome of using tools combined with what the global markets will allow.

The point of economics is not to help people, it's to make good efficient decisions. that is what economics is, studying decisions.

WHen people say "the economics of the situation" they mean the parameters/indicators that affect my decision.

Based on your dislike of low interest I assume you like inflation. But as the market inflate and your stock portfolio numbers inflate, you didn't necessarily become richer, same for deflation.

i think it is borrow rather than barrow. also i think you are looking at it the way the paradigm has been set.

the reason for an economy is to meet the needs of the people in the country there is no need for anyone to bare any brunt of anything as long as there is enough to go around it can be prevented. in terms of interest there are other ways to provide incentive to save and investment such as feps which i invented. also there are other ways of controlling aggregate demand too. i saying there does not need to be an interest at all or the bad side to the economy.

in relation to resources and production. you might argue that the current economic system enables more to be produced and for it to be done on a larger scale. the point i am making is shouldn't we be using less and producing things that need to be produced how much is used on plastic crap and useless stuff. how is this that being more efficient. lets take your cookie idea so what if a new cookie is around will that help any one no. what it does is take the resources in society away from people (the most vulnerable) and provide others with a new cookie. if that is your idea of an efficient economic system i am disappointed. the fact of the matter is i don't think that is your idea of an efficient market or that you even agree with what is going on. i think you are living in the social and economic paradigm that you have been set by the few in power by the media and have to conform or face social rejection. i think you have become set in the way of thinking things must be that way for this reason or that reason when in actuality the reason or the reason for the reason is not beneficial.

all i am seeing at the moment is arguments out of text book saying you should do things this way because of this or that. but why. why is the textbook saying that what is the agenda of the person who wrote it.

open your mind to what is going on think out of the box.

 

[splinter7]

I don't love the system in place.

What you suggest as efficient sounds like move towards centrally planned communism. There the irrational people wouldn't be allowed to be inefficient. I am not willing to live like that and most people I know wouldn't do it either.

Also, changing the paradigm requires more than legislation and political involvement. It requires sacrifice of life like it has in almost all revolutions as revolution will be necessary. Only when enough people are poor enough will this happen.

Are you willing?

Are you willing if most other people aren't?

Are you willing to physically ,politically and financially fight all the people that benefit from the system?

I am not too worried about the paradigm, I merely need to survive in it.

Without new tools how would you fix things?

For my thesis I wrote on the benefits to society/u.s. households for the use of a VAT tax on inputs to business to replace the personal income tax system while maintaining the same government revenue.
I have the evidence that shows how it would be bettter and is feasible. It will never happen.

I recommend understanding the current system instead of trying to find replacements. It will get you farther. Or, rather than changing the whole thing, how can you add to what we already have without throwing the baby out with the bath water. That would be much more palatable.

As an example of real system failure, for example when Texas decides to be its own country again, then there might be room for a great change. Until then, only small amounts of change will be tolerated.

There are too many interested players to do much about anything.

right now, any legislation to increase government's role in everyday life is pretty feasible. 5 years ago, any legislation to reduce taxes to corporations or give the government rights pry into the lives of citizens would have been feasible.

Theres the problem. Only 2 options. Bad and worse. If a 3rd option would get enough support they could play the system, get their financing and eventually with time get a real shot at reform.

We can actually do this, peacefully. I wish unsatiated people would realize that their vote for either main party is a throwaway and has little impact beyond the local precinct and state, then maybe they would instead economize their presidential vote to have the greatest positive societal impact. The most useful vote is at the congressional level.

 

[Roughnet13888]

Quote from splinter7:

FCCT,

THe government has a great impact on the interest rate. They use monetary and fiscal tools to affect it though the Fed and congress. They can also use influxes of funds to free up capital. Yah, they don't say "this is the new rate", but they do control much of it.
Simple interest calculator calculation rates mortgage compound high interest savings account
I have wondered what happens when the credit rating system fails us in that all/many people have been assessed as a credit risk on a personal level as result of default. If you haven't screwed up your life this way, no worries, banks will still lend. People will still lend and so on. Its been that as far back as man knows. If it does come to this, the credit rating system will be redefined to meet the needs of the lenders and consumers.
The only way I can think of to make true what you said is that Gov would have to raise taxes enough to erode capital or transfer it to the Gov and the Gov would then have to stop lending.

Credit is not the problem. As long as there are rich people that don't want to work, there will be credit/loans at some price.

Regarding the statement about value of investments and company value. When there are low interest rates there could also be low commodity prices (just like now), which crowds out the effect of a lower discount rate. Hopefully your text book doesn't say what you said it says. It should say all other things equal or ceterus paribus just after that statement. If it doesn't throw it away.

This was important info, but did anything happened according to it yet?