Why Should the FED have to slow down and expanding economy?
- Thread starter TJustice
- Start date
The simple answer is: Because the expanding economy's primary fuel is cheap and incorrectly priced debt, due to rates being too low, for too long. That has to be corrected, otherwise capital is mis-allocated.
When the cost of debt approaches zero, the amount of debt approaches infinity.
When the cost of debt approaches zero, the amount of debt approaches infinity.
All that is true.
But...
1. The capital has already been mis allocated.
2. If FED's policies causes the mis allocation should we really give the FED a chance to mess things up further.
3. We should have had a proper wipe out after the 2008 banking crisis. Instead we let The Fed engineer this situation. I am concerned the FED will over do interest rates and smash us into a crash and then that crash will be mis managed into depression.
I see the 1920s into the Great Depression as strong analogue.
I am not saying the FED will over tighten. But, I am not saying we should have great confidence in their ability to manage interest rate hikes either.
We really need to get some good minds on this or I think we would be better off letting the market manage interest rates as we monitor the FEDs money creation.
But...
1. The capital has already been mis allocated.
2. If FED's policies causes the mis allocation should we really give the FED a chance to mess things up further.
3. We should have had a proper wipe out after the 2008 banking crisis. Instead we let The Fed engineer this situation. I am concerned the FED will over do interest rates and smash us into a crash and then that crash will be mis managed into depression.
I see the 1920s into the Great Depression as strong analogue.
I am not saying the FED will over tighten. But, I am not saying we should have great confidence in their ability to manage interest rate hikes either.
We really need to get some good minds on this or I think we would be better off letting the market manage interest rates as we monitor the FEDs money creation.
1. Capital continues to be mis-allocated every day that goes by where rates are incorrectly priced cheap.
2. I don't understand your point here at all. Not one bit.
3. Yep. And if your aunt had balls she'd be your uncle. But unfortunately that didn't happen. Any tightening at this point is too much. There's no way out.
My point is a simple point. When you mess with the invisible hand of market forces you stand a strong likely hood of getting smacked. So lets not mess with the market for a while.
Let them cease printing money for a few years. Let them only conduct necessary market operations.
Let the market adjust interest rates in an environment where it can anticipate zero inflation or maybe even a dollar that gets stronger. That alone should keep rates low. Instead of money being returned to the lender that is worth less on the world market... lenders may get stronger dollars in the future. Hence lenders can knock a few percentage points off the interest rate... right off the bat.
Let them cease printing money for a few years. Let them only conduct necessary market operations.
Let the market adjust interest rates in an environment where it can anticipate zero inflation or maybe even a dollar that gets stronger. That alone should keep rates low. Instead of money being returned to the lender that is worth less on the world market... lenders may get stronger dollars in the future. Hence lenders can knock a few percentage points off the interest rate... right off the bat.
Doesn't solve the mis-allocation of capital, cheap debt problem. We're so far down that road that any time you take your foot off the pedal, you're going to get a recession.
This is what I never understood. The US government before the Federal Reserve printed its own monies. Then, the Federal Reserve was created. Now, this is not a government agency as a lot of people think. It is a private bank. And you know what they do? They now print monies for the US government and charge the US taxpayers interest for doing so! Why? The US government can sure print the monies for itself and not have to pay interest on it? I agree. Abolish the Federal Reserve. It is not there to serve the US public but, to enrich some individuals!
That is the risk. I agree. Hard to get around it. But, there is also the risk the Fed will over do it. So the question is who would do it better the Fed or the market (without interference) .