First of all, this is the first post I open so I will use it to introduce myself. I have only been writing for some days on here.
I am a engineer living in a town near Barcelona. I come from a socialist (social-democrat) family and I considered myself one, until randomly I discovered Ron Paul. I have since then become "obsessed" with monetary history, economics in general, but monetary history is what has pushed me to study economics. I am still learning and use my free time to read what I can, while trying to discover what its going on today with the crisis. My whole economic education has been austrian (thanks mises.org for the resources). It was funny because when I started talking to poeple in some spanish economic forums at first was really hard to understand what they were talking about since they were mainly neo-clasicals.
I think my english is quite good, but its not perfect and sometimes I make silly mistakes so bear with me. Also, my whole economic education has been completely self-taugh, so sometimes I am lacking in some areas that did not manage to pick my attention. As I said, I am in the process of reading mainly about monetary history that is what is picked my interest most. Year and a half ago I was a complete ignorant about economics.
And to the topic:
I am sure everybody is aware that the Fed is now paying interest in the banks reserves. The Fed wanted to emit Fed bonds, but since Congress was not very receptive with that idea, it seems the Fed is going to keep paying interest on the deposits. The first time I heard what they were doing it sounded obvious to me why they were doing it, but I have not read it anywhere. Also, there were two Bob Murphy post about this and Mankiw's opinions about this and none were very conclusive, so I am wondering if I am missing something in what I think the Fed wants to do.
The posts: http://mises.org/daily/4005
http://consultingbyrpm.com/blog/2010/01/mankiw-gives-himself-out-on-inflation.html
First of all, it is obvious that paying interest on the deposits will not stop inflation, only dealy it, at the price of creating some more (the interest payments). Also, the Fed and the US goverment want to solve the crisis through inflation and not deflation. Therefore it seems very obvious to me that paying interest on the deposits allows the Fed to control the rate at wich the new money created for the banking system will go into the real economy. By rising and lowering this interest rate it will incentivate the banks to lend more of this moeny or keep it in the Fed. The hiper-inflation process has a psicological component. Once people percieves that the money is going to loose value they want to spend it, and that accelerates the whole process. So controling the rate at wich the new money goes into the economy will allow the Fed to have high inflation while trying to control it to avoid hiper-inflation. And at the same time feed the goverment deficit spending and save the big banks. Or at least that might be what they are planning, I am not saying they will suceed. But the USA economic system is fascist enough for them to succeed.
So, this does make sense or am I missing something?
hugolp: I am sure everybody is aware that the Fed is now paying interest in the banks reserves. ............Or at least that might be what they are planning, I am not saying they will suceed. But the USA economic system is fascist enough for them to succeed. So, this does make sense or am I missing something?
I am sure everybody is aware that the Fed is now paying interest in the banks reserves. ............Or at least that might be what they are planning, I am not saying they will suceed. But the USA economic system is fascist enough for them to succeed.
Pay no attention- its just another manifestation of the "we can control the economy" fantasy mentality, so beloved of the "scientific" mindset, and of course, the statist mindset.
Their new latest play toy, thats all.
Of course it won't work in the way its intended, but as to when and how the market readjusts/self corrects to overcome the rampant stupidity of these fantasists, that is anyones guess.
Given that as long as government, and the central banking it/they depend on exists, this behavior [and worse] must/will continue ad infinitum , along with the inevitable [although mostly unpredictable] consequences of the statist "control" mindset, the most important question for the individual,as I see it, is :" how can I protect my hard-earned wealth from these [and other] meddlers"?
For more information about onebornfree, please see profile.[ i.e. click on forum name "onebornfree"].
hugolp:So controling the rate at wich the new money goes into the economy will allow the Fed to have high inflation while trying to control it to avoid hiper-inflation. And at the same time feed the goverment deficit spending and save the big banks. Or at least that might be what they are planning, I am not saying they will suceed. But the USA economic system is fascist enough for them to succeed.
I think you've described the situation perfectly. I like your insight that the Fed has accepted CPI "inflation" and now intends to "control" hyperinflation by tinkering with paying interest on excess reserves. They won't succeed.
"The market is a process." - Ludwig von Mises, as related by Israel Kirzner. "Capital formation is a beautiful thing" - Chloe732.
Well, it seems the Fed is going in this direction: Bloomber: Fed Weighs Interest on Reserves as New Benchmark Rate (Update1)