[newarts]

Ann Pettifor and Victoria Chick published an interesting article about the difference between John Keynes' actual policies and what has become known as Keynesian Economics. Simply stated his goal was to hold interest rates down to encourage investment...

Ann Pettifor: Happy Anniversary, Mr. Keynes

Monetarists were concerned with the quantity of money. Keynes's overwhelming concern was with the rate of interest on money. He argued that monetary policy should always support the private and public economy, stimulate it, and prevent recession.....

The centerpiece of his policy prescription was to sustain low rates of interest across the spectrum of loans: short- and long-term, real, safe and risky. Countering determined efforts to undermine these policy goals, Keynes used his position at the Treasury and the Bank of England, and his influence with U.S. President Franklin D. Roosevelt, to make this vision a reality. Interest rates were forced down from 1932; the bank rate was set at 2 percent until 1951.

Now, while our fed to bank rates are low, the banks are increasing interest rates on at least mortgage loans (5.5% now and rising).

Wouldn't it be wise to encourage lower rates to increase job creating investment? It appears that what's actually happening is the feds are sending free money to the financial industry which is pocketing some and substantially marking up the balance. The less they lend the more they can keep.

Closing Freddie and Fannie may not help this situation I'd guess.

I hope the monetary wizards here can help me understand this situation.

Dave

[GeneV]

I don't consider myself a financial wizard, but I do work closely with the real estate and housing industry. I would suggest that the problems associated with Fannie, Freddie and the federal encouragement of home ownership are somewhat separate from what the economy as a whole may need. The spread between interest rates for real estate and other goods seems comparatively high, thus RE rates seem a bit low in comparison to the cost of money in general.

RE subsidies are so ubiquitous that I don't think you can look at the RE loans in the sense in which Ms. Pettifor intereprets Keynes. It is subsidized more directly, in the common understanding of Keynes. What would the interest rates be on car or business or credit card loans be if the government would buy the loan and immediately remove all risk from the lender? What if all interest were tax-deductible as it was before 1985? What if real estate-intensive businesses like farming and housing rentals did not get direct supports? The list of favored treatment of this purchase goes on and on.

[jeffkrol]

Ann Pettifor and Victoria Chick published an interesting article about the difference between John Keynes' actual policies and what has become known as Keynesian Economics. Simply stated his goal was to hold interest rates down to encourage investment...

Ann Pettifor: Happy Anniversary, Mr. Keynes



Now, while our fed to bank rates are low, the banks are increasing interest rates on at least mortgage loans (5.5% now and rising).

Wouldn't it be wise to encourage lower rates to increase job creating investment? It appears that what's actually happening is the feds are sending free money to the financial industry which is pocketing some and substantially marking up the balance. The less they lend the more they can keep.

Closing Freddie and Fannie may not help this situation I'd guess.

I hope the monetary wizards here can help me understand this situation.

Dave

RALPHONOMICS: Modern Monetary Theory beats interest rate adjustments.
http://seekingalpha.com/article/238671-modern-monetary-theory-for-austrians
Our "economy" is run by a bunch of crows chasing "shiney things".........
http://bilbo.economicoutlook.net/blog/?p=1266
As to "our" credit charges.. that are really only weakly lined to "their" credit charges.....
Bank fees, cred card intrest...
fed rate could be zero and these can still climb...... as you've seen.....
Personally the banks are probably "gouging" a bit to help clear the massive losses still ticking away on their books........
how do you "encourage" priv. industry to 1)lend 2)lower rates when it doesn't have to??

Sorry this has nothing to do w/ interest rates per se.. just like repeating this at intervals so people don't lose sight......

“With one brief exception, the federal government has been in debt every year since 1776. In January 1835, for the first and only time in U.S. history, the public debt was retired, and a budget surplus was maintained for the next two years in order to accumulate what Treasury Secretary Levi Woodbury called “a fund to meet future deficits.” In 1837 the economy collapsed into a deep depression that drove the budget into deficit, and the federal government has been in debt ever since. Since 1776 there have been exactly seven periods of substantial budget surpluses and significant reduction of the debt. From 1817 to 1821 the national debt fell by 29 percent; from 1823 to 1836 it was eliminated (Jackson’s efforts); from 1852 to 1857 it fell by 59 percent, from 1867 to 1873 by 27 percent, from 1880 to 1893 by more than 50 percent, and from 1920 to 1930 by about a third. Of course, the last time we ran a budget surplus was during the Clinton years. I do not know any household that has been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837. The United States has also experienced six periods of depression. The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929. (Do you see any pattern? Take a look at the dates listed above.) With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction. The Clinton surplus was followed by the Bush recession, a speculative euphoria, and then the collapse in which we now find ourselves. The jury is still out on whether we might manage to work this up to yet another great depression. While we cannot rule out coincidences, seven surpluses followed by six and a half depressions (with some possibility for making it the perfect seven) should raise some eyebrows. And, by the way, our less serious downturns have almost always been preceded by reductions of federal budget deficits. I don’t know of any case of a national depression caused by a household budget surplus.”

http://pragcap.com/resources/understanding-modern-monetary-system