Interest rates are driven by the supply and demand of credit. Supply outstrips demand now.
There are two sides to every transaction; low rates are good for borrowers and bad for lenders. What makes you think the lenders are entitled to a greater return on their savings? Do you think we should force people to borrow at higher rates for this purpose?
>wealth flowing from working classes and savers to the bankers and the managerial class.
The working class in America are debtors and have no savings. Outside of low rates contributing to driving housing prices higher in some communities, how are the working class harmed by lower payments on their debt?
> Interest rates are driven by the supply and demand of credit. Supply outstrips demand now.
While that's somewhat true, its also largely dictated / controlled / heavily influenced by government. This means the overnight lending rate, U.S. bond rate, etc.
You're both right. The Fed is a lender (to banks only) and carries out what they call "open-market operations" with the goal of enacting policy and not making money. They throw around enough money to skew the market.
>This means the overnight lending rate, U.S. bond rate, etc.
The overnight lending rate is set by the Fed, yes.
Treasuries are sold in the market. Although an initial auction price is set, the rates will fluctuate based on demand for the bonds.
I don't deny the Fed are a major influence on rates, as it's a major component of their mandate now. However, the market can "agree" or "disagree" with those rates and set corresponding rates however they choose.
But your missing the key part. Sometimes if the Fed sets rates too low and there's not enough demand for the bonds the Fed buys the bonds thus keeping the interest rates artificially low.
>Sometimes if the Fed sets rates too low and there's not enough demand for the bonds the Fed buys the bonds thus keeping the interest rates artificially low.
Yes, it's how the Fed conducts monetary policy. Can you name the last time that US treasuries were under-subscribed? Greek bonds have lower rates to US treasuries; which would you rather own? On a relative basis, how can one claim that US interest rates are "too low"?
> The working class in America are debtors and have no savings.
There are plenty of working class people that avoid debt and save money. Why should those people, who are acting responsibly, lose out on savings interest? We should be encouraging people to save, not make it cheaper to go into more debt.
Interest rates are set by FED, who can print arbitrary amount of money out of thin air, there is no supply/demand mechanism involved in setting them. Basically every rate change is an experiment testing whatever monetary theory is currently popular among FED board members.
>Interest rates are set by FED, who can print arbitrary amount of money out of thin air
One interest rate is set by the Fed, which serves as a benchmark for other market rates.
But it's a simple question: if I can borrow money at 3%, why would I borrow your money at 7% so you can earn a return? And if someone wants to lend me money at 3%, why is that "artificial"?
>who can print arbitrary amount of money out of thin air
How else should money be created? Should we do pretend mining, like Bitcoin?
> One interest rate is set by the Fed, which serves as a benchmark for other market rates.
This used to be true, but lately CBs are also buying bonds. That affects their supply/demand balance, which affects their price, which is another way of expressing the interest rate.
Monetary policy, and the setting of rates, is accomplished by the buying and selling of bonds in the open market by the Fed. They buy bonds and create money, or sell them to destroy it. This affects the amount of money "available" in the system, which affects interest rates.
Of course, this transmission mechanism isn't perfect.
Real mining seemed to work okay in past. American GDP grew faster in the 1800s under the gold standard (avg. 4%+) than any time after the creation of the federal reserve.
> American GDP grew faster in the 1800s under the gold standard (avg. 4%+) than any time after the creation of the federal reserve.
Yes... during industrialization. Basically all countries experience rapid GDP growth during their industrialization. Even developing countries today get 4%+ GDP growth. Look at China's GDP growth in the last 50 years for a recent example.
You would still have to prove to me that the rate of gold mining is the perfect tool to prevent inflation/grow the economy. Who knows if it may have grown faster or slower during that period without the gold standard.
Interest rates are driven by the supply and demand of credit. Supply outstrips demand now.
There are two sides to every transaction; low rates are good for borrowers and bad for lenders. What makes you think the lenders are entitled to a greater return on their savings? Do you think we should force people to borrow at higher rates for this purpose?
>wealth flowing from working classes and savers to the bankers and the managerial class.
The working class in America are debtors and have no savings. Outside of low rates contributing to driving housing prices higher in some communities, how are the working class harmed by lower payments on their debt?