tag:blogger.com,1999:blog-25646979.post7545262265688476122..comments2024-01-01T15:35:12.954-07:00Comments on Simple Utah Mormon Politics: "Animal Spirits" or Government Failure: Which Causes Economic Panic?Frank Stahelihttp://www.blogger.com/profile/01822334061980912687noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-25646979.post-62057694838369055972009-08-05T11:40:00.731-06:002009-08-05T11:40:00.731-06:00I think you may be defining the problem too narrow...I think you may be defining the problem too narrowly. Booms and busts did not begin with central banking. They are caused by the difference between what I call the "Real Interest Rate" and the interest rate which is set when Fractional Reserve Banking rules are applied. <br /><br />Fractional Reserve Banking allows the creation of fictional money (that it is fictional is revealed during a 'run' on the banks). This fictional money is loaned out at a lower rate than the "Real Interest Rate" because of its greater supply and lower cost. As a result, the "bad" (fictional) money tends to drive out the good. In addition, the fictional money creates a false sense of prosperity, leading to malinvestment. <br /><br />When something happens to challenge the fictional money system - whether by government interference or natural disaster, the result is a run on the bank. It is during this process that malinvestments are exposed. <br /><br />What is a "Real Interest Rate"? It is the interest rate that someone would require to agree to loan you (hard) money that they had honestly saved from excess productivity. Before I take it out of my vault and hand it over to you, I must be very confident that I will get both principal and interest back. <br /><br />When Fractional Reserve Banking offers money which has been created "out of thin air" for loan, they are willing to accept a lower rate for it because they didn't have to work for it, and consequently my hard earned money is never loaned, while theirs is had for the taking. <br /><br /> The real victim here is that the person who worked so hard to save their money is not able to rent it out at a decent rate, because he is competing with dishonest money. If he chooses to loan his savings at the lower rate, he is competing against a system with lower inherent risk, and over time is likely to incur real losses, not the phony losses that the bank experiences. <br /><br />Another victim is the rising generation, which learns that saving money is for chumps. It is much more lucrative to game the system and set yourself up using Fractional Reserve Banking money and get other people working for you. <br /><br />This is the predicament that America finds itself in. Central banking is merely the ultimate extension of the Fractional Reserve Banking concept. With the loss of any metallic underpinnings in 1971, we now have only fictional money. The central bank creates it by typing on their keyboards and the banks inflate it further through Fractional Reserve Banking (the reserve requirement has all but disappeared as well).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-25646979.post-68684112612359976942009-07-19T19:23:08.134-06:002009-07-19T19:23:08.134-06:00Don't Keynesians usually accuse Christians of ...Don't Keynesians usually accuse Christians of blind obedience? ;-)<br /><br />My world doesn't even have to be perfect in order to achieve a much better way to set interest rates. If the central bank were gone, banks would set the rates that they could afford to offer. If they set the rates too low, they'll have too many people seeking loans for which the bank doesn't have enough funds. The Fed, on the other hand (just like every other central bank the United States has ever had) nearly always sets the rates too low, which signals to the markets that there is more credit than really exists in a healthy economy. In this very imperfect scenario, if banks don't peg their rates closely to the Fed's rates, they will be out of business.Frank Stahelihttps://www.blogger.com/profile/01822334061980912687noreply@blogger.comtag:blogger.com,1999:blog-25646979.post-22000014040000170892009-07-07T09:49:25.533-06:002009-07-07T09:49:25.533-06:00I recently had a discussion with someone who said ...I recently had a discussion with someone who said the stimulus must have worked because Keynes says it should have.<br /><br />On another note, short of a central bank doing it, how would your perfect world set interest rates?Cameronhttps://www.blogger.com/profile/06016275707476655364noreply@blogger.comtag:blogger.com,1999:blog-25646979.post-72498816521529203732009-07-02T18:00:58.227-06:002009-07-02T18:00:58.227-06:00A recent study of behaviors of mall shoppers found...A recent study of behaviors of mall shoppers found that even when the vast majority (on the order of 80%) behave in economically irrational ways, the overall result closely approximates what would be considered ideal distribution if 100% of them had acted rationally.<br /><br />However, each of us acts within the boundaries of certain systems. If actors are capable of manipulating the incentives in the systems, irrational behavior is amplified so that distribution outcomes become skewed.Scott Hinrichshttps://www.blogger.com/profile/11831447472339880148noreply@blogger.com