Rebirth of Reason

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Monday, July 27, 2015 - 11:20amSanction this postReply

I suspect the author has conflated extremely low interest rates with extremely high inflation rates resulting in the equivalent consumption of equity so I wanted to post here for analysis and discussion.

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Monday, July 27, 2015 - 11:56amSanction this postReply

Thanks, Luke. I archived the article on my own hard drive. For the past five years, I have been unable to reconcile the problem you imply. We believe that in a laissez-faire economy - nominally "gold-based" but really more complex than that - interest rates would be low because risk would be low. We believe that monetary inflation increases the cost of money over time because money loses value over time. On the other hand, if you borrowed a kilogram of gold against which to capitalize a product launch of your own, the gold would hold its value over time. Indeed, in a laissez-faire regimine gold as a physically static quantity of stuff would increase in value as ever more goods and services compete for it. Thus, prices would fall over time. Interest rates would be based  entirely on the perceived exposed risk of the venture.


You want to build and sell the gizmo you designed. The banker likes your character and business plan. But some of the the coolest gizmos of the past have failed: markets are subjective. (Amiga Computer, Adam PDA, Vitamin Water.) So, there is risk.


Moreover, if the banker wants my money, she has to offer me more than I can get for it by holding it, or using it to produce my own widgets, etc.  She must pay interest to borrow my gold in order to lend it to you.


But, with our zero-interest banking system, no one has any incentive to save -- at least not in a bank.  If you want to see your money return a profit as an investment, you have to do something else with it.  That economy is unperceived by Paul Krugman.


(Edited by Michael E. Marotta on 7/27, 11:57am)

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Sunday, August 9, 2015 - 6:55amSanction this postReply

What the author is referring to: the amount of capital needed in order to have a certian level of purchasing power...  yes, the amount of capital needed has increased due to low interest rates.  No this is not hyperinflation.


I think commodity prices are just temporarily going down due to

1. Misallocation of capital into producing commodities, funded by low interest rates, resulting in greater production of said commodities.

2. Decreased demand of said commodities due to a general decrease in economic activity (economic depression from government & bank wealth redistribution).


But eventually commodity prices will increase due to all of this zero interest rate policy (due to more money printed with "QE")... or else the borrowers will default and the lenders will go bankrupt.


It may not be "hyperinflation", just high inflation, experienced here in the US.  Unless maye the US dollar loses its reserve currency of the world status and foriegn countries trade all of their dollar savings back to the US.  shodowstats.com  says price inflation has been around 8% per year since 2000.  I believe that more than the government's reported ~2%.

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