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curious mouse
meandering wanderer


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Money -> Credit -> Goods -> Labor
#13882008 - 01/31/11 01:34 PM (13 years, 18 days ago) |
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I'm going to have to write an essay on how the Fed can indirectly control the credit markets, goods markets, and labor markets...by manipulating the money market.
anyone want to help me out?
i get the gist of it....i'm only hung up on is the savings/investment part.
i can see how reducing Short-Term interest would encourage people to take out loans to investment...but how would driving down interest rates make savings go up or the supply of loans go up in order to spur investment?
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Silversoul
Rhizome


Registered: 01/01/05
Posts: 23,576
Loc: The Barricades
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Re: Money -> Credit -> Goods -> Labor [Re: curious mouse]
#13882700 - 01/31/11 03:33 PM (13 years, 18 days ago) |
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You might want to actually check out the theory of endogenous money, which suggests that the Fed might not have as much control over credit markets as they'd like you to believe.
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Shins
Fun guy



Registered: 09/15/04
Posts: 16,337
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Re: Money -> Credit -> Goods -> Labor [Re: Silversoul]
#13885115 - 01/31/11 10:30 PM (13 years, 18 days ago) |
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basically look up the Austrian school of economics.
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Silversoul
Rhizome


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Posts: 23,576
Loc: The Barricades
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Re: Money -> Credit -> Goods -> Labor [Re: Shins]
#13885238 - 01/31/11 10:46 PM (13 years, 18 days ago) |
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Quote:
Shins said: basically look up the Austrian school of economics.
No. Just...no.
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ArmFromTheAbyss
Old Hand

Registered: 10/09/02
Posts: 1,368
Loc: Down here in Babylon
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Re: Money -> Credit -> Goods -> Labor [Re: curious mouse]
#13886663 - 02/01/11 09:02 AM (13 years, 17 days ago) |
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Quote:
curious mouse said: i can see how reducing Short-Term interest would encourage people to take out loans to investment...but how would driving down interest rates make savings go up or the supply of loans go up in order to spur investment?
These ideas are based on the Money Multiplier Theory which has been completely disproved for a few years now.
Lowering interest rates only increases investment in theory. What we've seen in reality is that low interest rates increases speculation. If speculators keep driving up prices of raw goods, and interest rates are effectively zero, there is obviously no incentive to put your money in a savings account. This creates asset bubbles because people are forced to buy higher yielding, riskier assets. The Fed is trying to discourage saving.
Bank lending is actually no longer tied to the quantity of savings held on reserve. Only two things are necessary to create a loan: a willing (and able) borrower, and a willing lender.
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zappaisgod
horrid asshole


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Re: Money -> Credit -> Goods -> Labor [Re: Silversoul]
#13887023 - 02/01/11 10:48 AM (13 years, 17 days ago) |
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Quote:
Silversoul said:
Quote:
Shins said: basically look up the Austrian school of economics.
No. Just...no.
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curious mouse
meandering wanderer


Registered: 08/25/09
Posts: 775
Last seen: 10 years, 9 months
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Quote:
ArmFromTheAbyss said:
Quote:
curious mouse said: i can see how reducing Short-Term interest would encourage people to take out loans to investment...but how would driving down interest rates make savings go up or the supply of loans go up in order to spur investment?
These ideas are based on the Money Multiplier Theory which has been completely disproved for a few years now.
Lowering interest rates only increases investment in theory. What we've seen in reality is that low interest rates increases speculation. If speculators keep driving up prices of raw goods, and interest rates are effectively zero, there is obviously no incentive to put your money in a savings account. This creates asset bubbles because people are forced to buy higher yielding, riskier assets. The Fed is trying to discourage saving.
Bank lending is actually no longer tied to the quantity of savings held on reserve. Only two things are necessary to create a loan: a willing (and able) borrower, and a willing lender.
do you have a source that would show it has been disproved?
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ArmFromTheAbyss
Old Hand

Registered: 10/09/02
Posts: 1,368
Loc: Down here in Babylon
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Re: Money -> Credit -> Goods -> Labor [Re: curious mouse]
#13906215 - 02/04/11 04:35 PM (13 years, 14 days ago) |
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curious mouse
meandering wanderer


Registered: 08/25/09
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cool. thanks.
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curious mouse
meandering wanderer


Registered: 08/25/09
Posts: 775
Last seen: 10 years, 9 months
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Re: Money -> Credit -> Goods -> Labor [Re: curious mouse]
#13913932 - 02/06/11 01:50 AM (13 years, 13 days ago) |
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so we got no believers in the money multiplier?
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