To think clearly about interest rates, one must stop to consider the questions: why do creditors and equity owners seek positive real after-tax returns on their investments in the first place, and why are users of such funds willing and able to pay such positive returns? How is this a win-win relationship?
To think clearly about interest rates, one must stop to consider the questions: why do creditors and equity owners seek positive real after-tax returns on their investments in the first place, and why are users of such funds willing and able to pay such positive returns? How is this a win-win relationship?
The basic answers to these questions are that productivity isn't simply a matter of having labor/natural resource inputs available and of having suitable technologies for combining such inputs for producing desirable outputs. Productivity is also a function of how much time is available for transforming inputs into outputs, and of how much tolerance for uncertainty there is.. Positive real after-tax returns are what compensate investors for furnishing the time and uncertainty-tolerance to the structure of production.
An act of thrift--one's restraint of present consumption--coupled with investment spending does not injure production (nothwithstanding lots of Keynesian nonsense to the contrary). On the contrary, temporarily reducing demand for immediate consumption makes it possible to shift inputs to boosting capital goods formation and lengthening supply chains, and making supply chains more robust against occasional disruptions. This produces *more* goods in the long run and raises the real incomes of the owners of productive inputs, notably the real wages of workers. Free market interest rates balance these benefits of greater productivity against the costs of taking more time and bearing more uncertainty in achieving results.
On the other hand, the act of creating fiat money out of thin air, or creating bank deposits out of thin air, doesn't add any time or uncertainty-tolerance to production. When the Fed and the fractional reserve banks create money to spawn artificially-cheap credit, they are just bidding up the price of capital assets to unsustainable heights and misallocating them, and subsidizing free-loading elites and their assorted minions and clients, not doing anything productive. No real thrift has taken place, and in fact is discouraged by the artificial reductions of interest rates and by subsidies for backing government promises of economic security and bailouts.
If we are to free ourselves from the stagnation of capital consumption, the waste of bank-driven boom/bust cycles, the injustice of predatory Davosian elites feasting on the creation of fiat money and fractional reserve money substitutes at the expense of productive people, and the catastrophic risk of a hyperinflationary collapse of the entire global economy, we must end the fiat money/fractional reserve money creation rackets, and let genuinely free markets set interest rates by balancing the supply and demand for thrift instead of tolerating production-warping/wealth-concentrating interventions by monetary central planners.
To think clearly about interest rates, one must stop to consider the questions: why do creditors and equity owners seek positive real after-tax returns on their investments in the first place, and why are users of such funds willing and able to pay such positive returns? How is this a win-win relationship?
The basic answers to these questions are that productivity isn't simply a matter of having labor/natural resource inputs available and of having suitable technologies for combining such inputs for producing desirable outputs. Productivity is also a function of how much time is available for transforming inputs into outputs, and of how much tolerance for uncertainty there is.. Positive real after-tax returns are what compensate investors for furnishing the time and uncertainty-tolerance to the structure of production.
An act of thrift--one's restraint of present consumption--coupled with investment spending does not injure production (nothwithstanding lots of Keynesian nonsense to the contrary). On the contrary, temporarily reducing demand for immediate consumption makes it possible to shift inputs to boosting capital goods formation and lengthening supply chains, and making supply chains more robust against occasional disruptions. This produces *more* goods in the long run and raises the real incomes of the owners of productive inputs, notably the real wages of workers. Free market interest rates balance these benefits of greater productivity against the costs of taking more time and bearing more uncertainty in achieving results.
On the other hand, the act of creating fiat money out of thin air, or creating bank deposits out of thin air, doesn't add any time or uncertainty-tolerance to production. When the Fed and the fractional reserve banks create money to spawn artificially-cheap credit, they are just bidding up the price of capital assets to unsustainable heights and misallocating them, and subsidizing free-loading elites and their assorted minions and clients, not doing anything productive. No real thrift has taken place, and in fact is discouraged by the artificial reductions of interest rates and by subsidies for backing government promises of economic security and bailouts.
If we are to free ourselves from the stagnation of capital consumption, the waste of bank-driven boom/bust cycles, the injustice of predatory Davosian elites feasting on the creation of fiat money and fractional reserve money substitutes at the expense of productive people, and the catastrophic risk of a hyperinflationary collapse of the entire global economy, we must end the fiat money/fractional reserve money creation rackets, and let genuinely free markets set interest rates by balancing the supply and demand for thrift instead of tolerating production-warping/wealth-concentrating interventions by monetary central planners.