INTEREST RATES Part 2
Misses approach
1- Law supply demand and the effect on interest rates
We said
before that demand (capacidad de compra) & supply (capacidad de venta) work
in opposite direction: si la demanda crece, sube el precio y si las ventas u
ofertas de venta crecen baja el precio. Una econ
saludable es la que genera un balance entre ambas (demand & supply). Como
lograrlo? Solo es posible en un mercado sin interferencias del Gbno,
monopolios, ni billonarios en las bolsas de valores (WS u otros): y estos son
justo los “main actors’ en la suba de intereses (higher interest rate).
Dijimos ya que para los keynesianos “spending drives
economic growth and savings decrease it”. Su interes por tanto es solo estimular la demanda o capacidad de compra.
El bajo ‘interes-rate’ los puede beneficiar si eso solo se usa para hacer
compras (lo que genera deudas) y no para crear pequeña empresa para un futuro
auto-gestivo. In short: Cuando el consumidor paga menos ‘interes rate’ eso le
da mas dinero para gastar o para ahorrar o invertir. Puede incluso prestarse
mas dinero de los bancos (a bajo interés) para malgastarlo en compra de mas
carros o mas casas. Pero puede también prestarse para invertir o crear pequenias
empresas (o en coops) y devenir independiente de las grandes Corp.
Sin duda el bajo interés rate estimula un
crecimiento Econ balanceado. Pero la suba de intereses solo beneficia a los
lender (prestamistas) y los mas usureros son los grandes bancos. Solo a los
grandes banqueros beneficia el fraude ‘suba del interest rate en ausencia de
alta inflación (hay quienes llaman a este banquerismo trampista ‘pure
keynesianism’) Lo cierto es que los grandes banqueros del US supuestamente están
quebrados y se prestan del FED (QEs y bailouts). Estos mamones o lishes están
abandonando el país con todo el dinero robado al FED y la Nacion. No se que
banqueros de MEX están detrás de la propuesta de AMLO (el nuevo Pdte) para
subir los intereses (interest rate). Esa suba solo se justifica si hay una alta
inflation (more tan 10%). De lo contrario, es claro que hay gatos encerrados en la
despensa (big bankers), pronto lo sabremos. En el US la subida del interest
rate no se justifica. Se hace solo para satisfacer the glutony of big
bankers.
He aquí la versión oficial sobre
demanda y oferta en relación a interest rate
Who Demands and Who Supplies in Financial Markets?
In any market, the price is what
suppliers receive and what demanders pay. In financial markets, those who
supply financial capital through saving expect to receive a rate of return,
while those who demand financial capital by receiving funds expect to pay a
rate of return. This rate of return can come in a variety of forms, depending
on the type of investment.
The simplest example of a rate of
return is the interest
rate. For example, when you supply money into a savings account at a
bank, you receive interest on your deposit. The interest paid to you as a
percent of your deposits is the interest rate. Similarly, if you demand a loan
to buy a car or a computer, you will need to pay interest on the money you
borrow.
Veamos 1ro
esta relación (demand-supply) sin interferencias: el exceso de compras (demand)
genera deudas y el exceso de supply (ofertas de venta de un mismo bien or
comodity) en el mercado genera precios bajos y ahorros (savings para el
comprador). Pero, para el vendedor el objetivo es lograr un alto precio y para
el comprador un precio razonable, competitivo o promedio. Para que el vendedor
logre precios altos se crean los “booms” que son precios artificiales donde hay
interferencia del FED, los monopolios y los especuladores del Wall Street. Cuando esto ocurre es cuando el Gbno, via FOMC, decreta la suba del “interest rate” .
According to the law of demand, a higher rate
of return (that is, a higher price)
will decrease the quantity demanded. When this happens for more than 6-12
months, the Govt rise interest rate. As the interest rate rises, consumers will reduce the quantity that they
borrow (so, baja la demanda). Pero
no se genera ahorro pues el ahorro requiere un bajo
interest rate. Se genera entonces un proceso de estancamiento Económico
cercano al crush, que es lo que hoy vivimos.
Veamos como ocurre eso: en teoría, according to ‘the law of supply’, a higher price
increases the quantity supplied. Pero ocurre lo inverso: sube el interest rate= suben los precios =
disminuye la demada = baja the quantity supplied = crisis cercan al crash. So, the Demand-Supply law: is been trashed.
2- Para los Keynicians –lo dijimos ayer- es la
capacidad de gasto lo que mueve el crecimiento economico (Spending drives
Economic grow. Savings decreased). Los gastos (spending) y otros factores que consideran
relevantes para el crecimiento del GDP son:
A- The
consumer expending;
B-
Govt Expending (el gasto militar se come mas del 40% del
Presupuesto Nacional : war drills, military statiosn world-wide y promoción de
guerras fuera, lo que impulsa la venta de WMD y la histeria por el WW3).
C-
Business investment (no
importa que sea inversión en genocidios: war crimes & crimes agst humanity:
cuanto costo la guerra en Irak, cuantos muertos dejo? Cuantos sin casa, familia
ni pueblo.. antes de venderse como mercenarios? ) tampoco importa apoyar al
inversor medio (en producción y no mera especulación).
D-
Net exports: El
war-trade con China lo hemos perdido. Jamas devimos recurrir al chantaje
nuclear y al pirataje de las sanciones económicas para negociar con otros
paises. Nos vamos quedando solos. Pero es Todo lo de arriba (4 factores) es lo
que debiera impulsar el crecimiento de GDP (‘the determing factor in the
strength of our economy’).
El GDP-US-rate
es un canto de sirena, a lo maxino que llegamos con todos los gastos (spending)
de arriba es al 6%.. Incluyendo la cantidad de USD que podemos fabricar de la nada (En el 2017 –en el mejor momento del 2017
llegamos a mas de 19.39 trillions). En cuanto al GDP rate, en el 2017 llegamos
oficialmente al 6.7%.. pero en el 2018
el GDP figure in the third quarter 2018 was $5,164,757 million. Una
caída atros, lo que ha obligado a traer las tropas de fuera (Siria, Afganistan,
etc). United States is suffering an horrible economic crisis. Se dice que se
nos acerca el crash.
Hoy
acabamos de ver que todo esos costos NO es lo que impulsa una economía sana,
auto-gestiva y duradera. Que el objetivo debiera ser el equilibrio entre demand
and supply y que es el factor interest rate lo que desafortunadamente impide
ese balance, si la inflación es baja (-3%). “Productive
capital come into existence by saving. A part of the goods produced is
withheld for immediate consumption and employed for processes whose fruits will
only mature at a later day” . Ludwig Von Mises was referring: the best Health
and Education for all.
Who are behind the demand for high interest rates?
According to investopedia LENDERS
are the one who demand higher interest rate.
But 1st lets define what is ‘interest rate’. “An interest rate
is the cost of borrowing money. Or, on the other side of the coin, it is the compensation for the service and risk of lending money.
In both cases it keeps the economy moving by encouraging people
to borrow, to lend and to spend. But, prevailing interest rates are always
changing, and different types of loans offer different interest rates. If
you are a lender,
a borrower or both, it's important you understand the reasons for these changes
and differences.
====
NOTE
Lenders
and Borrowers
The money lender takes a risk that the borrower may not pay
back the loan. Thus, interest provides a certain compensation for bearing risk.
Coupled with the risk of default is the
risk of inflation.
When you lend money now, the prices of goods and services may go up by the time
you are paid back, so your money's original purchasing
power would decrease. Thus, interest protects
against future rises in inflation. A lender such as a bank uses the interest to process account costs as
well.
==
LET’S SEE THE DYNAMIC OF INTEREST RATE IN THE US
How Interest Rates
are Determined? IN THEORY they are
determined by Supply and
Demand Law: an increase in the demand for money
or credit will raise interest rates, while a decrease in the demand for credit
will decrease them. Conversely, an increase in
the supply of credit will reduce interest rates
while a decrease in the supply of credit will increase them. [[ Otro canto de sirena, luego lo
veremos. CUANDO hablemos del FOMC que regula cambios en Monetary-policy: se
reune 8 veces al anio ]]
===
=== NOTES
In general, as interest rates are reduced, more people are
able to borrow more money. The result is that consumers have more money to
spend, causing the economy to grow and inflation to increase. The opposite
holds true for rising
interest rates. As interest rates are increased, consumers tend to save as
returns from savings are higher. With less disposable
income being spent as a result of the increase in the
interest rate, the economy slows and inflation decreases. Jean Folger
Updated Dec 7, 2018
Inflation
and interest
rates are often linked, and frequently referenced in macroeconomics.
Inflation refers to the rate at which prices for goods and services rise. In
the United States, the interest rate, or the
amount charged by lender to a borrower, is based on the federal
funds rate that is determined by the Federal
Reserve (sometimes called "the Fed").
See Chart at: https://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp
Under a system of FRACTIONAL-RESERVE
banking, interest rates and inflation tend to
be inversely correlated. This relationship forms one of the central
tenets of contemporary monetary policy: central
banks manipulate short-term interest rates to affect the rate of inflation in
the economy.
The world currently uses a
fractional-reserve banking system. When someone deposits $100 into the
bank, they maintain a claim on that $100. The bank, however, can lend out
those dollars based on the reserve ratio set
by the central bank. If the reserve ratio is 10%, the bank can lend out the
other 90%, which is $90 in this case. A 10% fraction of the money stays in the
bank vaults.
As long as the subsequent $90 loan is outstanding, there are
two claims totaling $190 in the economy. In other words, the supply of money
has increased from $100 to $190. This is a simple
demonstration of how banking grows the money supply.
…
Interest Rates,
Savings, Loans and Inflation (demand-supply law: inversely correlated)
The interest rate acts as a price for holding or loaning
money. Banks pay an interest rate on savings in order
to attract depositors. Banks also receive an interest rate for money
that is loaned from their deposits.
When interest rates are low,
individuals and businesses tend to demand more loans. Each bank loan
increases the money supply in a fractional reserve banking system. According to
the quantity theory of money, a growing money supply increases inflation. Thus,
a low interest rate tends to result in more inflation.
High interest rates tend to lower inflation.
This is a very simplified version of the relationship, but
it highlights why interest rates and inflation tend to be inversely correlated.
What is
Fractional Reserve Banking
Fractional reserve banking is a banking system in which only
a fraction of bank
deposits are backed by actual cash on hand and are available for
withdrawal. This is done to expand the economy by freeing up capital that can
be loaned out to other parties. Many U.S. banks were forced to shut down during
the Great
Depression because too many people attempted to withdraw assets at the same
time.
FOMC: The Federal Open Market Committee
The Federal
Open Market Committee (FOMC) meets eight times each year to review economic
and financial conditions and decide on monetary policy.
Monetary policy refers to the actions taken that affect the availability and
cost of money and credit. At these meetings, short-term interest rate targets
are determined. Using economic
indicators such as the Consumer
Price Index (CPI) and the Producer
Price Indexes (PPI), the Fed will establish interest rate targets intended
to keep the economy in balance. By moving interest rate targets up or down, the
Fed attempts to achieve target employment rates, stable prices, and stable economic growth.
The Fed will raise interest rates to reduce inflation and ease (or decrease)
rates to spur economic growth.
Investors and traders keep a close eye on the FOMC rate
decisions. After each of the eight FOMC meetings, an announcement is made
regarding the Fed's decision to increase, decrease or maintain key interest
rates. Certain markets may move in advance of the anticipated
interest rate changes and in response to the actual announcements. For
example, the U.S.
dollar typically rallies
in response to an interest rate increase, while the bond market
falls in reaction to rate hikes.
===
THE
DELICATE DANCE OF INFLATION AND GDP
video:
===
People
also ask
What is the relationship between inflation and nominal
interest rates?
How do interest rates affect stocks?
What happens if the inflation rate increases?
What is the relationship between investment and interest
rate?
Apr 2, 2016 - In general, as interest rates are lowered,
more people are able to borrow more money. The result is that consumers
have more money to spend, causing the economy to grow and inflation to increase.
The opposite holds true for rising interest rates.
===
===
by Ellen Brown Writer, Dandelion Salad The Web of Debt Blog
April 22, 2018 The Fed is aggressively raising interest rates, although
inflation is contained, private debt is already at 150% of GDP, and rising
variable rates could push borrowers into insolvency. So what is driving the
Fed’s push to “tighten”?
…
===
by Ellen Brown Featured Writer Dandelion Salad webofdebt.com
March 22, 2012 Far from reducing risk, derivatives increase risk, often with
catastrophic results. — Derivatives expert Satyajit Das, Extreme Money
(2011) The “toxic culture of greed” on Wall Street was highlighted again last
week, when Greg Smith went public with his resignation from Goldman Sachs in
[…]
===
NOTES FROM ELLEN BROWN
INTEREST RATE INFLATION AND DEUDA
The Fed is aggressively raising interest rates, although
inflation is contained, private debt is already at 150% of GDP, and rising
variable rates could push borrowers into insolvency. So what is driving the
Fed’s push to “tighten”?
On March 31st the Federal Reserve raised its
benchmark interest rate for the sixth time in 3 years and signaled its
intention to raise rates twice more in 2018, aiming for a fed funds target of
3.5% by 2020.
in April 2017, the International Monetary Fund warned that
projected interest rises could throw 22% of US corporations into default.
Alarmed commentators warn that global debt levels have
reached $233
trillion, more than three times global GDP
US federal debt, which has more than doubled since the 2008 ..
shooting up from $9.4 trillion in mid-2008 to over $21 trillion in April 2018.
Fed has announced that it will be dumping its government
bonds acquired through quantitative easing at the rate of $600 billion
annually. It will sell $2.7 trillion in federal securities at the rate of $50
billion monthly beginning in October. Along with a government budget
deficit of $1.2 trillion, that’s nearly $2 trillion in new government debt
that will need financing annually.
Why is the Fed increasing interest rates and adding to
government debt levels?
The Phillips curve has proven virtually
useless in predicting inflation, according
to the Fed’s own data
The notion that shrinking the money supply will prevent
inflation is based on another controversial model, the monetarist dictum that
“inflation is always and everywhere a monetary phenomenon”: inflation is always
caused by “too much money chasing too few goods.” That can happen, and it is
called “demand-pull” inflation. But much more common historically is
“cost-push” inflation: prices go up because producers’ costs go up. And a
major producer cost is the cost of borrowing money. Merchants and
manufacturers must borrow in order to pay wages before their products are sold,
to build factories, buy equipment and expand. Rather than lowering price
inflation, the predictable result of increased interest rates will be to drive
consumer prices up, slowing markets and increasing unemployment – another Great
Recession. Increasing interest rates is supposed to cool an “overheated”
economy by slowing loan growth, but lending is not growing today. Economist
Steve Keen has shown that at about 150% private debt to GDP, countries and
their populations do not take on more debt. Rather, they pay down their debts,
contracting the money supply; and that is where we are now.
A Closer
Look at the FOMC
The FOMC is composed of the Federal Reserve’s seven-member
Board of Governors, the president of the New York Fed, and four presidents from
the other 11 Federal Reserve Banks on a rotating basis. All 12 Federal Reserve
Banks are corporations, the stock of which is 100% owned by
the banks in their districts; and New York is the district of Wall Street. The
Board of Governors currently has four
vacancies, leaving the member banks in majority control of the FOMC. Wall
Street calls the shots; and Wall Street stands to make a bundle off rising
interest rates.
The Federal Reserve calls itself
“independent,” but it is independent only of government. It marches to
the drums of the banks that are its private owners. To prevent another Great
Recession or Great Depression, Congress needs to amend the Federal Reserve Act,
nationalize the Fed, and turn it into a public utility, one that is responsive
to the needs of the public and the economy.
….
===
by Ellen Brown Featured Writer Dandelion Salad webofdebt.com
March 22, 2012 Far from reducing risk, derivatives
increase risk, often with catastrophic results. — Derivatives
expert Satyajit Das, Extreme Money (2011) The “toxic
culture of greed” on Wall Street was highlighted again last week, when Greg
Smith went public with his resignation from Goldman Sachs in […]
===
by Dr. Ellen Brown Featured Writer Dandelion Salad
webofdebt.com June 5, 2010 While individuals, businesses and governments suffer
from a credit crisis created on Wall Street, the banks
responsible for the crisis are tapping into nearly-interest-free credit lines
and using the money to speculate or to make commercial loans at much higher
rates. By forming […]
….
Dandelion Salad By Alex Lantier wsws.org 19 March 2008 In a further move aimed at easing the
credit crisis and propping up US banks, the Federal
Reserve Board on Tuesday cut the federal funds rate, the key short-term
interest rate, from 3 percent to 2.25 percent. This is the Federal
Reserve’s sixth rate cut since […]
….
===
by William John Cox Guest Writer Dandelion Salad http://www.thevoters.org September 14, 2012
A balanced analysis of the security interests of the United States vis-a-vis
Israel requires a careful review of their security interests and the history of
their interaction. That review demonstrates that Israel will always put its
interest before any other nation, including the […]
----
by Rick Rozoff Featured Writer Dandelion Salad Stop NATO
June 20, 2012 On June 18 Secretary General Anders Fogh Rasmussen met with Saudi
Arabia’s Deputy Minister of Foreign Affairs Dr. Nizar Madani at the North
Atlantic Treaty Organization Headquarters in Brussels, Belgium. The head of the
Western military alliance extended an invitation to the Persian […]
….
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