I have just taken over as economics Minster for a small unknown failed European state and to be honest im out of my depth - I'm hoping the community at mises.org can help me with setting up a basic fiscal and monetary policy.
We have strong ties to the UK (the queen is shown on our money) and I would like to base our setup on their model. The first problem I need to deal with is our high interest rates, but how do I actually go about dropping interest rates from 10% to 9% or 100 bases points?
Currently I really want to gain a good understanding of how interest rates are set in the real world and compare this to other economic stimulus options such as QE later.
Thank you for any help the Mises.org community can give my beleaguered nation
(first post - go easy on me)
QE seems to involve buying or selling large amounts of state bonds/
A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions with newly created money in order to inject a pre-determined quantity of money into the economy. This is distinguished from the more usual policy of buying or selling government bonds to keep market interest rates at a specified target value.
1. You admit ignorance, yet have an opinion on what the interest rate should be. If you are so admitedly ignorant, why do you presume to have an opinion? Why do you want to lower the interest rate if you cannot explain both the benefits and the disadvantages of doing so, as well as their relative importance?
2. Let the interest rate be what it wants to be. Don't interfere with it in any way.
3. Tell all the banks you are not going to lend them any money, nor buy or sell them anything. You are closing up shop. They are on their own.
4. Put the country on a gold standard.
5. Get rid of all tarrifs, allow all imports.
6. Yes, it is like I was saying to my friend the Crown Prince shortly before his tragically car accident last week for which sums of the 170 millions dollar I am writing now to request your support as you are a known person who is honest in these affairs. I said, "Crown Prince, you do not have the reality knowledge to handle reality-world moneying! Let me, your friend, transfer to a holding account in the America." Naturally, he agreed to such a thing, and I am now writing to you, who is wise after reading this preventative article, to request your bank account informations.
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It's easy to refute an argument if you first misrepresent it. William Keizer
Good one, Dave, on all 5 points :)
1.) Ignorance and certainly ignorance awareness is not subjugator of opinion.. I've never had cancer but I still hold a faily strong negative opinion about having it.
2.) Interest rates appear a popular tool for controlling monetary policy, I am trying to better understand how they actually work in 99% of the worlds economies.
3.) We must lend to the banks otherwise they will have no currency to lend to smaller private investors. It is a liquidity service I seek to provide.
complience: 3.) We must lend to the banks otherwise they will have no currency to lend to smaller private investors. It is a liquidity service I seek to provide.
I'm no expert, but I'm just amazed at this. What do you think is the point of opening savings accounts with banks?
That's because you know enough about cancer to know it is bad.
But you don't know enough about economics to know that 10% is a good interest rate. Proof: Why do you think 10% is good? Whatever answer you give is mistaken, as you would know if you read up on AE.
Popular and good are not the same thing. Is Justin Beiber good, do you think? Is his economic advice worth taking?
The way they actually work is that the govts print so much money that interest rates fall. The effect is inflation. That's how they work.
What happened to all the currency they had until now? Did it burn up in somebody's furnace?
Why do you think it is the job of a govt to provide a liquidity service? What expertise does it have to ensure it gets paid back?
Or are we talking about outright gifts to the banks, using money taken away from everyone else? What kind of liquidity is that? It's like pouring water from one glass into another and saying you have more water.
Let me clarity the situation a little the government of I which I am member only recently came to power in bloodless coup - it is for this reason I got my new job.
We have decided to start afresh with a new currency, that will be issued directly from the central bank. Although we did consider using private currencies like Paypal or Bitcoin, offical national currency is considered more secure and trusted than relying on private currencies primarily due to our powers of lethal force to protect it.
We must then ensure our banks can obtain access to the new currency, but if we lend without an interest rates our ability to control monitory policy is restricted and after the effects of inflation would mean the real value of returned funds was negative.
So im going to charge all banks 9% if they want to borrow.
Why not gold?
I have just taken over as economics Minster for a small unknown failed European state and to be honest im out of my depth...
Gideon? Is that you?
Well if banks are willing to pay me 9% in return for a loan of paper money.. why the hell would I want to get all dirty down a gold mine?
Plus I can always reduce the repayment costs by printing more money - is this a serious question?