| Topic: | Re:Re:Re:Re:Re:Time to raise interest rates? | |
| Posted by: | Stewart Dean | |
| Date/Time: | 24/03/09 13:31:00 |
| Maybe I should have asked you to explain your thinking. "If CPI is ~ 3%, before QE kicks in then interest rates rises will help stem consumer spending" CPI = Consumer Price Index, measure of the average price of consumer goods. RPI = Retail Price Index, this also includes housing costs. QE = Quantative Easing is about the creation of money 'out of thin air' in order to keep the economy alive. BOE = Bank of England. Quantative Easing has the danger of devaluing a currency so the best environment to do it in is one where deflation is happening. Too much quantative Easing (or printing money) leads, as history is very clear to tell us, to inflation. As you point out the currency has been devalued. And yes it is spending now which we will very much have to pay for later. Increasing inflation would increase that devaluation more. This whole thing is designed to ease the pressure on banks that created money out of the whole use of equities that relied upon house prices always rising and had no safety mechanisms built into them. So unreal money was created by the banks based upon a false idea of the future that lead to a massive feedback effect when that assumption was objectively shown to be false. Moral here is economies need to be based upon real commodities with low ratios of real vs. unreal money. Making money from money and overly complex instruments severs that ties and leaves a system to feedback effects unchecked by real world factors. You get what we are now experiencing because too many smart people bought into many financial truisms on faith and not on objectivity. You say interest rate rises will help stem consumer spending. Sounds like a good reason not to rise the interest rate as currently the problem is a drop in spending. Deflation also stems consumer spending as well as, with prices falling, people are hesitant to buy now when it may be cheaper later. So why would raising interest rates be a good thing - especially now. If we could lower them again I would say that's the smart thing to do - be we've run out of rope on that one. I don't understand the basis for you thinking interest rates need to be put UP. Stew Dean |