It's the Monetary Policy, Stupid
Up and down, up and down
Ok then so the US Presidential campaign is heating-up (Noam Chomsky is right, both parties are opposite sides of the same coin), and thus the candidates are looking for reasons to attack each other. Due to the financial problems caused by government-backed mortage bonds, leading to risky mortgage-lending and thus defaults, people are worried about the economy. And this has become a wedge for the Democrat presidential candidates.
But see really what happens too: The central bank lowers the interest rate and/or increases the money supply (the latter which they are always doing), and this makes the interest rate less than it should be naturally, eg if it was just savers and borrowers interacting with each other without a central bank mucking around with the value of money. The savers and borrowers interacting with each other freely would set the price of loanable and investment funds based upon the needs of society (savers and borrowers - any member of society is either one or the other, usually both !) at any given moment in time. This does not occur now due to central bank intervention.
So the cheaper interest rate means that people invest in longer-term projects than they would had the interest rate been left alone. These longer term invesments are not as profitable, not as fundamentally sound, as they should be, and would not have been made if the interest rate was left alone. Thus when the economy turns (and the economy has natural ups and downs just like any natural complex system) these bad investments are the first to get worse in the downturn.
The problem then is when the central bank then tries to step in and do something about the problem they worsened in the first place ! Bad investments caused by cheap money lose their value like they should, this then means people invest elsewhere and the economy shifts its resources into more fundamentally valuable activities. When these bad investment lose their value it, of course, makes the economly look bad.
When in fact the economy is just doing what it should which is to shake out bad investment. It looks bad and politicians think they should control everything so of course we must do something about it. But its just like the economy has a cold, and no one has a cure for the common cold.
So when the central bank lowers the rate (like the Republicans are asking the bank to do now, e.g., before election time so that the people - voters - have cheap money) this just means the bad investments created before don't shake-out like they should. So the bank just does its thing, prolonging recessions and misdirecting the economy's resources.
But the truth too is that the big financial houses make money selling money (bonds) on the up and down movements of the central bank. This, is known as monopoly capital. And a monopoly sponsored by the government is very hard to break indeed.
Ok then so the US Presidential campaign is heating-up (Noam Chomsky is right, both parties are opposite sides of the same coin), and thus the candidates are looking for reasons to attack each other. Due to the financial problems caused by government-backed mortage bonds, leading to risky mortgage-lending and thus defaults, people are worried about the economy. And this has become a wedge for the Democrat presidential candidates.
But see really what happens too: The central bank lowers the interest rate and/or increases the money supply (the latter which they are always doing), and this makes the interest rate less than it should be naturally, eg if it was just savers and borrowers interacting with each other without a central bank mucking around with the value of money. The savers and borrowers interacting with each other freely would set the price of loanable and investment funds based upon the needs of society (savers and borrowers - any member of society is either one or the other, usually both !) at any given moment in time. This does not occur now due to central bank intervention.
So the cheaper interest rate means that people invest in longer-term projects than they would had the interest rate been left alone. These longer term invesments are not as profitable, not as fundamentally sound, as they should be, and would not have been made if the interest rate was left alone. Thus when the economy turns (and the economy has natural ups and downs just like any natural complex system) these bad investments are the first to get worse in the downturn.
The problem then is when the central bank then tries to step in and do something about the problem they worsened in the first place ! Bad investments caused by cheap money lose their value like they should, this then means people invest elsewhere and the economy shifts its resources into more fundamentally valuable activities. When these bad investment lose their value it, of course, makes the economly look bad.
When in fact the economy is just doing what it should which is to shake out bad investment. It looks bad and politicians think they should control everything so of course we must do something about it. But its just like the economy has a cold, and no one has a cure for the common cold.
So when the central bank lowers the rate (like the Republicans are asking the bank to do now, e.g., before election time so that the people - voters - have cheap money) this just means the bad investments created before don't shake-out like they should. So the bank just does its thing, prolonging recessions and misdirecting the economy's resources.
But the truth too is that the big financial houses make money selling money (bonds) on the up and down movements of the central bank. This, is known as monopoly capital. And a monopoly sponsored by the government is very hard to break indeed.
posted by Cameron Weber at 4:16 PM
