The "Natural" Interest Rate

[moda0306]

I think "natural" interest rates are those that are not manipulated prices too far from what it would be without the manipulation. 
I have to be a stickler here that saying "too far" is moving the goal posts. What is "too far" enough to constitute manipulation. Manipulation is manipulation regardless of "how far" anyone considers it.

Likewise, if interest rates are grossly artificially low, one would expect certain things... a huge boom in lending, and therefore investment, and likely consumption, and therefore inflation.  People would rather hold tangible or increasing-income goods rather than cash and/or bonds. This is not a good way to determine if rates are too low. You don't know if in the absence of manipulated rates that lending wouldn't be collapsing and prices plummeting. Just because lending isn't booming and we aren't getting 15% increases in the price level doesn't mean rates aren't artificually low. This is faulty logic. You are assuming a certain outcome from artifically low rates and exluding other outcomes that could be just as valid

K,

"Too far" was meant to be a qualifier of materiality.  My pollution out of my vehicle may be "manipulating the economy," but, individually, not worth talking about on a macroeconomic level.  I wasn't trying to move the goal posts... just trying to achieve a level of materiality to work with.  It's important in economics.  If the government's meddling moves the "natural rate" from 5% to 4.999%, it's not worth losing our mind over.


So you think it is a natural function of a market economy to have a huge decrease of lending/investment, and a sharp decrease in the price level?  I thought these were UNNATURAL abhorations of the market?

You think it's natural for aggregate demand to grossly lag aggregate supply of productive capacity?

You think it is "natural" for us to go through a prolonged period of 20% unemployment associated with that lag?

If that is what you believe to be natural, I would make sure you explain that, explicitly, to those you mean to move with you to Anarcho-capitalia.  They might want to know that this is just another day in the life...

[Kshartle]

Let's not forget that the U.S. government implicitly (via the FDIC) and explicitly (via federal loan guarantees) makes saving money at interest "artifiically safe."

In a real anarchist paradise, as K has essentially admitted, you could be subject to extremely low interest rates, because storing and insuring your gold might just break you even at zero if you wanted to also enter it into a fractional-reserve system.

So there ARE artificial aspects entering the system, but from both ends in terms of cost/benefits to savers.  Once again... certain economc indicators should tell us whether rates are artificially high or low. 

And anarchists, as well as a lot of conservative supply-siders, don't want to admit that they aren't telling us the story that they'd like them to be.

If the natural rate of interest is low it's because there is a lot of savings. The savings mean there is capital available to grow the economy. A growing economy produces more goods and services which will make money more valuable.

The government declaring that slips of paper are money and you are forced to accept them, and the government and their handmadien the banks have the power to counterfiet them....does not benefit savers. This is ridiculous man.

The FDIC is the "sticker program". There is no money to bail them out. It also ensures that risky banks will profit at the expense of safer ones and grow to be "too big to fail". The price to then prevent them from failing will come at the cost of them supporting the government with bond-buying. It puts every dollar holder on the hook for the losses to inflation the government is going to dole out to them and the banks.

It's a complete scam holy moses. I can't beleive thier propaganda is so successful.

[Kshartle]

So you think it is a natural function of a market economy to have a huge decrease of lending/investment, and a sharp decrease in the price level?  I thought these were UNNATURAL abhorations of the market?

You think it's natural for aggregate demand to grossly lag aggregate supply of productive capacity?

You think it is "natural" for us to go through a prolonged period of 20% unemployment associated with that lag?

If that is what you believe to be natural, I would make sure you explain that, explicitly, to those you mean to move with you to Anarcho-capitalia.  They might want to know that this is just another day in the life...

If someone has a hangover and in order to cure the symptoms they start drinking again, are they just returning to their "natural" state? The hangover and the deleveraging is a natural process that is interrupted by more drinking. The same holds true for the market trying to re-align itself to free market sustainable demand. We call it a recession but it's actually the market trying to correct the distortions. More distortion doesn't and can't get the market to a normal state. Only a detox period (hangover time) can do that.

If the Keynsieans would stop trying to get the market drunk, with Krugman arguing we should switch to bacardi 151, the economy could sober up and start getting healthy again.

Or we could can keep drinking until we get alcohol poisoning and then get our stomachs pumped (depression).

So basically I was headed to the gym but now I'm thinking the bar in case anyone wants to join me.

[moda0306]

But back to my earlier question, who do you follow in terms of economic theory!? 

I don't read much anymore from "economists" but in the past it's been Browne, Schiff, Von Mises, Hyaek.

I can't think of many others. I just bought "The Wealth of Nations" on kindle. haven't started it though.

I am 50% done with "The law" from Bastiat, having purchased it over the weekend also.

The kindle is awesome to anyone who doesn't have one.

You read all those, and you really "don't know what an Austrian economist is?"

[moda0306]

So you think it is a natural function of a market economy to have a huge decrease of lending/investment, and a sharp decrease in the price level?  I thought these were UNNATURAL abhorations of the market?

You think it's natural for aggregate demand to grossly lag aggregate supply of productive capacity?

You think it is "natural" for us to go through a prolonged period of 20% unemployment associated with that lag?

If that is what you believe to be natural, I would make sure you explain that, explicitly, to those you mean to move with you to Anarcho-capitalia.  They might want to know that this is just another day in the life...

If someone has a hangover and in order to cure the symptoms they start drinking again, are they just returning to their "natural" state? The hangover and the deleveraging is a natural process that is interrupted by more drinking. The same holds true for the market trying to re-align itself to free market sustainable demand. We call it a recession but it's actually the market trying to correct the distortions. More distortion doesn't and can't get the market to a normal state. Only a detox period (hangover time) can do that.

If the Keynsieans would stop trying to get the market drunk, with Krugman arguing we should switch to bacardi 151, the economy could sober up and start getting healthy again.

Or we could can keep drinking until we get alcohol poisoning and then get our stomachs pumped (depression).

So basically I was headed to the gym but now I'm thinking the bar in case anyone wants to join me.

Why should aggregate demand have to drop, though?  If we built too many houses, wouldn't the "natural" reaction would the market collectively realizing to take some years off of that, but make either the same amount or maybe even some more of other things with all the newly freed-up labor?

Why, if there is investment in one sector, should ALL sectors suffer?  That doesn't seem like a "natural" response to me.  If I drank too much, my friends shouldn't be hungover as well if they drank some hot cocoa and got their 8 hours.

[Kshartle]

So you think it is a natural function of a market economy to have a huge decrease of lending/investment, and a sharp decrease in the price level?  I thought these were UNNATURAL abhorations of the market?

You think it's natural for aggregate demand to grossly lag aggregate supply of productive capacity?

You think it is "natural" for us to go through a prolonged period of 20% unemployment associated with that lag?

If that is what you believe to be natural, I would make sure you explain that, explicitly, to those you mean to move with you to Anarcho-capitalia.  They might want to know that this is just another day in the life...

If someone has a hangover and in order to cure the symptoms they start drinking again, are they just returning to their "natural" state? The hangover and the deleveraging is a natural process that is interrupted by more drinking. The same holds true for the market trying to re-align itself to free market sustainable demand. We call it a recession but it's actually the market trying to correct the distortions. More distortion doesn't and can't get the market to a normal state. Only a detox period (hangover time) can do that.

If the Keynsieans would stop trying to get the market drunk, with Krugman arguing we should switch to bacardi 151, the economy could sober up and start getting healthy again.

Or we could can keep drinking until we get alcohol poisoning and then get our stomachs pumped (depression).

So basically I was headed to the gym but now I'm thinking the bar in case anyone wants to join me.

Why should aggregate demand have to drop, though?  If we built too many houses, wouldn't the "natural" reaction would the market collectively realizing to take some years off of that, but make either the same amount or maybe even some more of other things with all the newly freed-up labor?

Why, if there is investment in one sector, should ALL sectors suffer?  That doesn't seem like a "natural" response to me.  If I drank too much, my friends shouldn't be hungover as well if they drank some hot cocoa and got their 8 hours.

Maybe someone else can explain how the economy is integrated. 

[Kshartle]

But back to my earlier question, who do you follow in terms of economic theory!? 

I don't read much anymore from "economists" but in the past it's been Browne, Schiff, Von Mises, Hyaek.

I can't think of many others. I just bought "The Wealth of Nations" on kindle. haven't started it though.

I am 50% done with "The law" from Bastiat, having purchased it over the weekend also.

The kindle is awesome to anyone who doesn't have one.

You read all those, and you really "don't know what an Austrian economist is?"

I just call them economists. Only two of them are from Austria right?

[moda0306]

"Austrian" is a school of thought in economics similar to "monetarists," "Keynesians," etc.

[Kshartle]

"Austrian" is a school of thought in economics similar to "monetarists," "Keynesians," etc.

I have inferred that but I've never known what is attributed to them specifically. Monetarists either. The Keynesians I am familiar with. This is what I was taught during my undergrad finance studies. It sounded so bizarre and incorrect that I had to challange my professors on it daily. They were completely incapable of explaining the cause of the "business cycle". It was as if it magically just happened and the government was needed to dial it down or ramp it up. I remember them saying it needed to get ramped down because inflation was a problem but then somehow inflation was also good.

It never made any sense and seemed like just a bunch of make-believe.

[moda0306]

"Austrian" is a school of thought in economics similar to "monetarists," "Keynesians," etc.

I have inferred that but I've never known what is attributed to them specifically. Monetarists either. The Keynesians I am familiar with. This is what I was taught during my undergrad finance studies. It sounded so bizarre and incorrect that I had to challange my professors on it daily. They were completely incapable of explaining the cause of the "business cycle". It was as if it magically just happened and the government was needed to dial it down or ramp it up. I remember them saying it needed to get ramped down because inflation was a problem but then someone inflation was also good.

It never made any sense and seemed like just a bunch of make-believe.

"Austrian" is a school of thought in economics similar to "monetarists," "Keynesians," etc.

I have inferred that but I've never known what is attributed to them specifically. Monetarists either. The Keynesians I am familiar with. This is what I was taught during my undergrad finance studies. It sounded so bizarre and incorrect that I had to challange my professors on it daily. They were completely incapable of explaining the cause of the "business cycle". It was as if it magically just happened and the government was needed to dial it down or ramp it up. I remember them saying it needed to get ramped down because inflation was a problem but then someone inflation was also good.

It never made any sense and seemed like just a bunch of make-believe.

I've seen some Keynesian writing that digs into truly what a recession is, why it is bad and unnatural, and why a fiscal response is preferred, but I'm looking for it presently.

Monetarists are kind of between Austrians (like free markets (mostly) and hate government spending) and Keynesians (like expansions of the money supply and lowering interest rates when there is a slump... they think depressions are bad).

All those guys you mentioned are essentially Austrian economic thinkers.

[Mountaineer]

The rich rules over the poor, and the borrower is the slave of the lender.  Proverbs 22:7. 

As a holder of LTT, the government is my slave.

Please call POTUS, SCOTUS and Congress and let them know please. 

... Mountaineer

[Mountaineer]

The rich rules over the poor, and the borrower is the slave of the lender.  Proverbs 22:7. 

As a holder of LTT, the government is my slave.

Speaking of slavery and such, here is an interesting article about government force and violence, voluntary membership in the union, and our situation today.  Sounds like Jefferson and Lincoln could have had an interesting debate .... wonder who would have won?

http://mises.org/daily/6805/The-Jeffers ... -Tradition

... Mountaineer

[rickb]

"Austrian" is a school of thought in economics similar to "monetarists," "Keynesians," etc.

I have inferred that but I've never known what is attributed to them specifically. Monetarists either. The Keynesians I am familiar with. This is what I was taught during my undergrad finance studies. It sounded so bizarre and incorrect that I had to challange my professors on it daily. They were completely incapable of explaining the cause of the "business cycle". It was as if it magically just happened and the government was needed to dial it down or ramp it up. I remember them saying it needed to get ramped down because inflation was a problem but then somehow inflation was also good.

It never made any sense and seemed like just a bunch of make-believe.

Re Austrian - see https://en.wikipedia.org/wiki/Austrian_economics

[Libertarian666]

Next this genius says since he doesn't see TV shows about horse-flipping and says that CNBC viewership is plummeting so that proves there's no wild exhuberance driven by cheap money.

That would really be an end-time phenomenon!