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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Mon Sep 26, 2016 11:43 am 
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what does the 'it' in 'the bourgeosie hit it with a vengeance' refer to?

The bourgeosie hit the constraint on capital spending with a vengeance?

Meaning, the bourgeosie removed the restraint on capital spending, or, the restraint on capital spending eventually caused trouble for non-modernising businesses.


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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Mon Sep 26, 2016 11:52 am 
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Geez, you are tedious to the max. Resumed capital spending. Had to. Replacement rates for fixed assets had fallen below 1:1 in previous years.


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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Tue Sep 27, 2016 2:15 pm 
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I still do not connect the dots. First oil prices (along with other commodities) rise, and you mention the big share that oil companies occupy in total profit. And this puts a crimp in the flow of funds. High oil prices are good for oil companies I'd think, but bad for the rest of the economy.

And then approx. in 2005 oil companies can no longer postpone the replacement of their fixed capital, so they invest capital "productively", ie not saving or playing on the stock market. So you'd think this is good. But perhaps by withdrawing their money from the stock market, that caused the collapse? Or if somehow having to put money into fixed capital lowers the oil companies' rate of profit, why should that effect the rest of the economy?


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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Fri Sep 30, 2016 4:27 pm 
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I'm as lost as Noa I fear. My understanding of the 2008 crisis was based pretty exclusively on the housing market crash.

From what you've said however, it wold appear as though oil companies over invested in the means of production from 2005 onward which culminated in a crash in 2008.

How is this related to the housing market however I am unaware.

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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Fri Sep 30, 2016 5:42 pm 
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Broletariat wrote:
I'm as lost as Noa I fear. My understanding of the 2008 crisis was based pretty exclusively on the housing market crash.

From what you've said however, it wold appear as though oil companies over invested in the means of production from 2005 onward which culminated in a crash in 2008.

How is this related to the housing market however I am unaware.



Start http://thewolfatthedoor.blogspot.com/2008/03/virtual-paper-part-1.html, and continue in chronological order through 2008, 2009, 2010 etc.......until the dots connect
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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Mon Oct 10, 2016 6:46 pm 
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I'm going to take another stab at this.

Oil companies had managed to capture huge swaths of the total profit accruing to manufacturing. This results in the cash sitting relatively still in the pockets of the oil companies very happy with the way things are going. Thus a denial of cash flow to the financial sector, thus a denial of their ability to make profits (they profit off of the money 'sweated' in circulation no?).

Additionally, the rate of profit itself was tanking because manufacturing as a whole had to invest quite a bit of money into replacing fixed capital. But you don't just replace fixed capital, you improve it, thus the rate of profit tanked. From here with a low rate of profit, the manufacturing sector as a whole is no longer borrowing money from the financial capital side of things which again appears to them as loss of profit.

But, they have a saving angel in the form of mortgages. Mortgages have been on the rise (Is my presentation of the overproduction of houses accurate in this regard?) and serve as the focal point for MASSIVE speculation because there's nothing else to work with. Eventually this fails too for the reasons we all are probably familiar with (the actual housing market crash).

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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Wed Oct 12, 2016 4:33 pm 
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I browsed the posts on Artesian's blog, which do go into it a bit more.

On interest-rate, the volume I'm co-editing (with Marxist essays on money) will include an article on the law of the tendency of the rate of interest to fall.

Quote:
Global real interest rates 1970 – 2014.

The graph below shows an ex post measure of the long-run global real interest rate, estimated as the difference between 10-year nominal government bond yields and current annual CPI inflation outturns for the G7 countries (Canada, France, Germany, Italy, Japan, UK and US), weighted together using PPP weights. The graph was produced by the Bank of England using IMF and BoE calculations.


Image

http://investors-corner.bnpparibas-ip.c ... est-rates/

I'm actually trying to find charts of the Central Bank interest rates of various countries' that also cover the post-WW2 time. For the US there seems to hav been until the 1980 a rise in rates, so this somewhat goes against the stated tendency of it to fall.


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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Thu Oct 13, 2016 2:51 pm 
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It seems in the eighteenth century 5% was normal:
Image
A closer look at the 20th century:
Image
http://stockmarketalmanac.co.uk/categor ... est-rates/
The 1960-80 period sees a high rate also in UK, so it seems a pretty universal phenomenon. What was its nature (exceptional circumstances?), especially as we always compare today's situation to this immediately preceding period: is it a meaningful comparison? Surely nobody would call this rising (up to the 80s) the sign of a good world economy then.


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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Mon Dec 12, 2016 3:31 pm 
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Looking at the real interest rates (the nominal interest rate minus the inflation rate), the post war history shows quite low interest rates, in line with the thesis of the falling rate of profit. The latter itself also must take account of inflation, as Marx wrote in a letter once.

Negative real interest rates can already be found in the past.

Quote:
In the late 1940s through the early 1970s, the US and UK both reduced their debt burden by about 30% to 40% of GDP per decade by taking advantage of negative real interest rates,

https://en.wikipedia.org/wiki/Real_interest_rate

Still in the 1980s they were comparatively high. Here's the conclusion of a study about this: World Real Interest Rates; Barro, Robert J. and Sala-i-Martin, Xavier, http://www.nber.org/chapters/c10972.pdf

Quote:
We simulated the model to try to explain why expected real interest rates were high for 1981-86 (averaging 4.2%) and low for 1975-80 (averaging 0.3%). The dominant influence was the variation in stock returns; these returns were very low for 1974-79 and much higher for 1980-85. The increase in oil prices from the early 1970s until 1986 is also an important factor.


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 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Thu Dec 29, 2016 2:55 pm 
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In the OP, among the issues raised, Broletariat wondered about:
Quote:
a different mechanism is at play for financial speculation vs. productive investment


Recent months witnessed a significant jump in the stock market (bank stocks in particular have done well), and a fall in the price of government bonds (ie a rise in their yield).

This began before Trump's election. It was in anticipation of the Fed rate hike before the end of the year.

This was all predicted by prof. Robert Aliber in October:

https://www.youtube.com/watch?v=VY4rQocVIA4
https://www.youtube.com/watch?v=0xIoFzPu8bY

If I understandd Aliber's explanation, the market would anticipate that, in the order to raise the interest rate (which involves some mechanism), the Fed would start selling the bonds on its balance sheet (thus causing their price to fall).

The market thus beings to front-run the Fed, and already begins selling off bonds.

And the market puts that money now into stocks. Into bank stocks in particular, because the banking business prospers under higher interest rates.

I think Aliber also expressed the view that bond prices are still too high. It's well worth watching the interview, because he also goes into the difference between short and long term bonds (I might not be rendering his thoughts correctly).

-
One remark I have about Aliber's prediction, is that he doesn't mention MBS. But the Fed vice-chairman Fischer said that they will begin reducing the size of their balance sheet by selling first their mortgage-backed securities. Indeed MBS prices seem to have fallen in the past months: http://www.mortgagenewsdaily.com/mbs/ So probably Aliber just forgot to mention them in the talk.
-

To bring this back to Broletariat's comment regarding "productive investment". The recent move of money out of bonds into stocks perhaps could be called a turn toward more productive investment.

After all, there's no other way for investors to "productively invest" their money into companies, than by buying stocks.

But if you're talking about a company's decision to invest in actual production, the expected interest rate seems to play little role in that (at least that's what I've picked from hearing some interviews).


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