I'm currently reading Rothbard's Man, Economy and State. Rothbard states in his discussion of the time structure of interest rates that the market tends to equalize the rates across the yield curve (pp. 445-450). I feel that Rothbard omitted an important discussion regarding the sensitivity to interest rate change of the bonds as a function of their duration. Longer bonds have higher sensitivity to interest rate changes, and that's something Rothbard didn't mention. It could be that this fact does not alter Rothbard's conclusions, but I want to make sure I get this one thoroughly.
What do you think? Do Rothbard's conclusions should remain intact? Please enlighten me.
Most new money is created at the overnight rate (the Fed Funds Rate). This causes an upward-sloping yield curve most of the time.
The banksters borrow at the Fed Funds rate and lend at long-term rates, profiting from the yield spread.
Only insiders may borrow overnight at the Fed Funds rate. Non-insiders make longer-term loans at higher rates.
I have my own blog at FSK's Guide to Reality. Let me know if you like it.
Yeah, but I don't see how what you wrote relevant to my question...
giladr: Longer bonds have higher sensitivity to interest rate changes, and that's something Rothbard didn't mention
Because it is basic knowledge.
'Men do not change, they unmask themselves' - Germaine de Stael
If it wasn't for State restriction of the money supply, short-term and long-term interest rates would be closer. People would borrow at one and lend at the other if there was a big discrepancy.
State restriction of the interest rate market prevents equilibrium.