Benefits of raising/cutting interest rates in the US

A

Argent47

Member
For the more macro-economic minded out there, I'm wondering if someone could tell me why the Federal Reserve would raise interest rates. How does it benefit the economy? (Sure, savers are rewarded, but does the Fed care about savers?).

And what are the reasons for keeping them low, on a macro economic level?
 
do some research and you will find that they keep intrest rates low to steal your money
by giving investers an after inflation negative return
I think its called finacial repression
 
Another reason to keep it low Is to keep money available to business/investors cheaply to encourage economic growth(in this case keep it going)
 
They keep it at zero so that their banker mates (ie: the banking cartel that owns most of the Fed) can borrow money for nothing, pay no interest to their depositors but charge interest on their loans. Basically the Fed is loaning it's owners money for free, backed by the taxpayer and turning a profit on it while giving nothing to anyone else. If justice prevails one day the people running the banks and the Fed will be standing in shackles before a jury.
 
DanielM said:
Another reason to keep it low Is to keep money available to business/investors cheaply to encourage economic growth(in this case keep it going)
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Except that the money that the banks get from the Fed for zero interest is not passed on in the form of low interest loans to businesses. Or anyone else.
 
Jonesy said:
DanielM said:
Another reason to keep it low Is to keep money available to business/investors cheaply to encourage economic growth(in this case keep it going)
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Except that the money that the banks get from the Fed for zero interest is not passed on in the form of low interest loans to businesses. Or anyone else.
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Actually your right, I herd recently that it is very tight over in the US for loans. Be it a house or business
 
They would be forced to raise interest rates if it got harder to sell US Bonds (i.e. debt) and they needed to make it more attractive for people to buy them.
Other than this, not much else would increase interest rates short of deliberate government intervention in pursuit of a policy goal (they deliberately raised interest rates to over 20% in the 1980s and this killed the last gold bubble).

It's late - this is not an eloquent post.
 
If you think about it, people are much more reckless in general when it comes to spending money when interest rates are low. This is what causes an increase in the amount of credit which forces up asset prices (usually houses) and creates these bubbles as everyone rushes to get in before they miss out.

Basically, artificially low rates encourage reckless behaviour, and then when bad debts start to go wrong, you need even lower rates to try and keep them afloat, because the assets just aren't able to cover the repayments. For example, if you borrowed money for a business, but it wasn't working out, if the IR's got lowered, maybe you could continue to survive for awhile but really it would just be dragging out the inevitable. Hence, why they call them zombies.

The idea with property is to keep the credit flowing. Hence, the increase in credit will, by the the law of supply and demand, feed an increase in prices which will encourage people to keep buying. But you need to push interest rates ever down in order to make people feel like they can afford to make the repayments on investment properties. Eventually, you reach a point where most people who are willing to buy one have done so, and then even pushing down IR's has little effect.

What really needs to happen is rates need to be raised to a much natural level so that assets can be liquidated and bad debts get washed out of the system because they become unaffordable. Then you basically get a system reset, where people are able to restart and have the ability to take on credit and restart the economy. That's basically how the business cycle works. But the longer, it gets held off by lowering interest rates, the more bad debts get built up in the system, the longer and harsher it will be when the correction comes.

It would be much better if interest rates were allowed to fluctuate at their market rate. yes, there would be individual tragedies from time to time, but that is humans and the market. People make bad decisions or mistakes and think they can make money from a venture when they really can't. Allowing them to stay in business temporarily saves jobs, but wastes scarce resources in the economy. And if we try to hold it off instead of lots of little shocks, that can be absorbed by the economy as a whole, you get one large system-wide shock.
 
And pertinent to the above think of the government as just another business that has borrowed money.
 
JulieW said:
I just posted on this issue, as well as soaring markets disconnected from reality - over here if anyone has more thoughts on this issue:
http://forums.silverstackers.com/topic-36090-dow-jones-breaking-past-14000.html
Click to expand...

As a share + everything else trader for years before PM's sparked my interest, it was always the case that loose monetary policy was bullish for the markets for a few reasons:
There is money around, and people are looking for somewhere to put it, and it encourages leveraging in.
Low interest rates are good for consumption, and thus corporate profits.
Stocks are also a place to hedge against inflation (believe it or not).

So from a market traders perspective, this bullish stockmarket is not unexpected. What will be unexpected is the crash if it comes.

There is a disconnect between what the metal bulls and what the stock bulls see.
 
The chart made by wolfman tells a very good story.

http://forums.silverstackers.com/message-469095.html#p469095

Notice how the time frame for each of the QE's gets shorter and shorter each time? That for me shows clearly how ABCT predicts the fruitless exercise that money printing is. As each round happens, regardless of the amount, the 'positive' effect is diminished each time. I put commas around positive because i think that word is subjective in this context. On it goes until the market forces that were causing the correction in the first place overwhelm the effect that QE is having in putting off the inevitable.

But to add to what Hawkeye wrote above, the bubble isn't just in property. Property is simply the bubble they blew up after the dot com crash. Greenspan tried to reinflate that bubble but the market twice shy, funneled some of that Greenspan-put money into property until it took on its own momentum. Now it's happening all over again but the bubble is now in treasuries with an upside effect on share prices.

That treasury/bond bubble is a sovereign debt crisis. What happens when this one pops? If the GFC was touted at system failures of the financial system, what will they say about this one? It has to be an implosion of epic proportions IMO.

It also ties into my thoughts on the sovereign gold holdings. The countries with the lions share of gold reserves are the ones that will be capable of a rolling start after this collapse.
 
wrcmad said:
JulieW said:
I just posted on this issue, as well as soaring markets disconnected from reality - over here if anyone has more thoughts on this issue:
http://forums.silverstackers.com/topic-36090-dow-jones-breaking-past-14000.html
Click to expand...

As a share + everything else trader for years before PM's sparked my interest, it was always the case that loose monetary policy was bullish for the markets for a few reasons:
There is money around, and people are looking for somewhere to put it, and it encourages leveraging in.
Low interest rates are good for consumption, and thus corporate profits.
Stocks are also a place to hedge against inflation (believe it or not).

So from a market traders perspective, this bullish stockmarket is not unexpected. What will be unexpected is the crash if it comes.

There is a disconnect between what the metal bulls and what the stock bulls see.
Click to expand...

The 1980s was a huge bull run until 1987 and interest rates reached 18%. Corporate confidence was pretty high until 1987. 'Greed is good' etc such conspicuous wealth. High interest rates are good for probably good for the economy too...
 
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