I quote:
These low interest rates aren’t mainly caused by central banks, they’re market prices set by fundamental global influences outside of anyone’s control. The most important is demographics: ageing populations and rapid growth in the developing world have created a huge pool of savings looking for safe assets that generate a steady income. That has driven up the price of those assets and so pushed down the annual income they provide for each unit of value. This powerful force isn’t going to change soon.
Total crap.
The Central Banks control interest rates. The money supply is controlled by Central Banks. The 'fractional reserve' banking settlement is sanctioned and promoted by the government. Subsidy policy, like housing benefit is policy set by the government. And tax policy which broadly taxes production and under-taxes or downright subsidises land is set by the government.
8 comments:
I'm not so sure.
If central banks can have zero interest rates and low-ish inflation nowadays, why couldn't they do that in the 1970s and 1980s?
I think that the 70s and 80s were a massive anomaly, what we have now is actually closer to normal.
"For example, affordability tests brought in after the financial crisis — for good reasons — mean it’s very difficult to borrow more than four times your income, even though the resulting interest payments would still be much more affordable than paying the equivalent rent"
If you can borrow more than 4 times your income, guess what happens to prices FFS?
MW. fair point. But. He is saying the base rates is a 'market rate' when clearly it isn't. It's a rate set by the BoE.
The stagflation of the 70's etc. Inflation, the malign effects on prices of the arbitrary expansion of money and credit takes time to move through an economy. The massive welfare expansion and nationalisations from 1945 to about 1970 were driven enabled by money expansion and that all came home to roost in the massive price rises (aka 'inflation') of the mid 1970's onwards.
In recent times price increases of much core stuff has been depressed (and deferred) by low cost production from India and China (e.g.) coming on line. Whilst stuff you can't import - most obviously land, as well as financial assets - have seen massive increases in prices (aka inflation).
My personal bet was/is that we will now start to see those price rises start to flow through in more day to day stuff like food and clothing.
What is the mechanism that you have in mind where a central bank reduces interest rates relative to what they would be without that central bank.
"My personal bet was/is that we will now start to see those price rises start to flow through in more day to day stuff like food and clothing."
Not food. The government wouldn't let the price of food rise as it would have a direct effect on rents and house prices.
Yes the state interferes in the price of debt, but interest rates have fallen steadily for thousands of years anyway. It's no surprise that interest rates are lower in a wealthy society with a much larger capital stock.
However, a bubble in debt will push interest rates lower. Low interest rates correspond to high prices for debt. The question is to what extent current low interest rates, low yields, with corresponding high asset prices and anomalously high price/earnings ratios, are the "new normal", or a bubble.
Are p/e ratios in the 40s sustainable, or are they a bubble which will collapse back to the more historically normal 20s?
https://www.gmo.com/globalassets/articles/viewpoints/2021/waiting-for-the-last-dance_1-2021.pdf
Clothing and Transport(fuel) are the only things inflating in price during the scamdemic. Food prices have actually shrunk(ONS)
And there are certainly no savings waiting to be invested in assets, given the interest rates is de facto negative now.
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