RedMarx

A Forum
It is currently Sat Jun 24, 2017 3:44 am

All times are UTC - 6 hours [ DST ]



Welcome


Post new topic Reply to topic  [ 20 posts ]  Go to page 1, 2  Next
Author Message
 Post subject: The Federal Reserve Interest Rate
PostPosted: Wed Sep 21, 2016 8:14 pm 
Offline
Comrade
User avatar

Joined: Wed Mar 30, 2011 7:13 pm
Posts: 1761
Has thanked: 275 time
Have thanks: 572 time
With the federal reserve meeting over today, I thought it would be appropriate to discuss the issue of federal reserve interest rates and financial capital/interest more generally as it relates to reproduction and crises. As far as I am aware, the Fed is attempting to keep rates low while pretending to raise them. They want the rates low because this stimulates production/investment. Production/investment requires low rates of interest because the rate of profit is currently so low. I could be wrong about the low rate of profit, but, at the very least, new investments are difficult due to the low potential for profit in these new investments. The drawback to this however is that super low interest rates fuel financial speculation. Why invest in industry when gambling on the stock market can be even more profitable? Therefore, in order to curb speculation, the fed must always appear as though it will raise rates while actually keeping them low. This also explains why the fed must attempt to maintain "trust." If investors call the fed's bluff, speculation will run rampant, forcing the fed to raise rates potentially causing a crash. This does, however, raise the question of why the threats of a rate hike do not also affect the rate of investment in the "real" productive economy. Perhaps they do, but to a lesser degree, but then why a lesser degree? Either a different mechanism is at play for financial speculation vs. productive investment (this calls to my mind the distinction Marx made between loans as a demand for new capital, and discounts as a demand for convertibility), or productive capital is simply forced to rely on loans regardless of the interest rate or else go out of business.

In general, these questions which I genuinely can not answer call to mind the relationship of financial capital to productive capital, and of the latter to consumer demand, and thus the capitalist cycle. In brief, consumer demand grows, which grows production, which grows financial speculation, then the opposite happens. Consumer demand shrinks (especially relative to productive capacity) forcing production to shrink, usually violently, and forcing speculation to shrink, again violently. During the expansion phase, demand not only drives production, but production drives demand, similarly, production not only drives speculation, but low interest rates drive production. The goal of the fed in times of contraction is to artificially keep interest rates low so as to stimulate production, however, capital is contracting, which means demand has contracted, and so the base of production is shrunken. Artificially extending the realm in which productive capital can operate also artificially extends the realm in which financial capital can operate, causing the structure to look more and more like an inverted pyramid with the base becoming an ever smaller point while the towering superstructure begins to wobble madly.

I'm guessing that I can find my answers with a real mechanical knowledge of what the fed does in more practical terms, and a review of Marx's analysis of financial capital.

_________________
Creation isn't beautiful. You inspire the ugliest things.
Broletariat has been thanked by:


Report this post
Top
 Profile  
 
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Thu Sep 22, 2016 1:59 am 
Offline
Comrade
User avatar

Joined: Thu Dec 27, 2012 6:10 pm
Posts: 416
Has thanked: 26 time
Have thanks: 31 time
There are different types of interest rates that the central bank charges, eg discount rate (in turn probably varies on different types of collateral) vs. rate on excess deposit reserves.

But yeah the idea that the central bank's low rates stimulate asset inflation/speculation is common (held by the WSWS), though I did stumble on a dissenting voice.

About stimulating lending for productive investments, you often hear that's the purpose of low interest rate (and how it is not working), but I wonder if it is not rather meant to keep the inter-bank lending from freezing up. Was the financial crisis in fact not about the banks being afraid to lend to each other? Same for QE.

On libcom (https://libcom.org/forums/theory/fallac ... 012?page=1) I posted that the daily transaction of inter-bank payments is 2-3 $ trillion dollars. Before the crisis the banks kept barely a dozen $ billion on deposit at the Fed; and that seemed to suffice. Now they seem to have excess deposit reserves of $ 2 trillion at the Fed.

I think the practical change in the borrowing behavior of banks is that they have to rely less on repurchase agreements (repos) with the Fed to get money for inter-bank payments; they can just use their excess deposit reserves.

It might be difficult to verify this, because data on how much individual commercial banks hold as excess deposit at the Fed or how much they individually borrow from the Fed's discount window is not made available (this has been a long complaint, already in the 1900s of the Bank of England operations).

Another thought: I seem to understand that it is actually low bond yields that are the causal factor that allows the central bank to charge negative rate (to be clear: on excess reserve deposits). Latest news in the bonds market was that they stopped dropping.


Report this post
Top
 Profile  
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Thu Sep 22, 2016 4:20 am 
Offline
Comrade
User avatar

Joined: Thu Dec 27, 2012 6:10 pm
Posts: 416
Has thanked: 26 time
Have thanks: 31 time
Quote:
as required under the Dodd-Frank Act, on September 28, 2012, the Federal Reserve began the regular publication of detailed information on individual discount window loans. This information, which is made available on a quarterly basis and with an approximately two-year lag, is available at


http://www.federalreserve.gov/newsevent ... action.htm


Report this post
Top
 Profile  
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Thu Sep 22, 2016 4:46 am 
Offline
Comrade
User avatar

Joined: Thu Dec 27, 2012 6:10 pm
Posts: 416
Has thanked: 26 time
Have thanks: 31 time
history on the Disclosure of Lending Data comparing the Fed and the BoE;

http://libertystreeteconomics.newyorkfe ... -OoKTUQhki

Quote:
Both at the BoE and the Fed, the rise of open market operations as the main tool of monetary policy has coincided with a reduced reliance on bilateral lending activities.


Report this post
Top
 Profile  
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Fri Sep 23, 2016 4:57 am 
Offline
Comrade
User avatar

Joined: Thu Dec 27, 2012 6:10 pm
Posts: 416
Has thanked: 26 time
Have thanks: 31 time
On importance of the reserve deposit rate, google the article "Misreading the Fed on a Rate Increase" in the WSJ last year (which Bernanke responded to).

Quote:
During the crisis, the Fed’s quantitative-easing programs—large-scale purchases of assets from the banks—drove up the volume of excess reserves to unprecedented levels, and so now many institutions can fulfill their reserve requirements without borrowing. Competition for reserves is low, and small changes in supply no longer induce the same changes in the cost of borrowing.

Open-market operations, in short, are no longer sufficient to drive the cost of borrowing in the federal-funds market to the FOMC’s target. In 2008, as the size of the Fed’s balance sheet rose, the federal-funds rate became volatile and started to deviate markedly from the FOMC’s target.


--
About the 2008 crisis, it's often blamed as a result of low interest rate of the Fed set after 2001 recession. Another explanation though (by Robert Z. Aliber) is that it was cross-border investment flows from China into the US (ie increasing the supply of money capital).


Report this post
Top
 Profile  
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Fri Sep 23, 2016 7:41 am 
Offline
Comrade

Joined: Wed Oct 08, 2014 4:41 pm
Posts: 619
Has thanked: 17 time
Have thanks: 25 time
But of course, we know that 2008 was not the result of low interest rates and/or cross border capital flows.
sartesian has been thanked by:


Report this post
Top
 Profile  
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Sun Sep 25, 2016 10:46 am 
Offline
Comrade
User avatar

Joined: Wed Mar 30, 2011 7:13 pm
Posts: 1761
Has thanked: 275 time
Have thanks: 572 time
Allow me to take a stab at elucidating the cause of the 2008 crisis.

I watched the movie The Big Short and so I'm largely basing myself off of this. If you've seen the film, they basically blame it on irresponsible bankers who are speculating on the mortgages of houses they know can't be paid for. But the problem lies precisely at the point of production of the houses, the speculation is only reckless and dangerous because the 'owners' of these homes cannot afford them, they cannot afford them but are briefly given access to them because the houses themselves have been overproduced. There's too many houses that too many people can't afford. The problem, then, lies not at the financial level, but at the point of (over) production of houses, which of course implies overproduction of the means of production for houses such as lumber, concrete, etc.

_________________
Creation isn't beautiful. You inspire the ugliest things.


Report this post
Top
 Profile  
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Sun Sep 25, 2016 4:04 pm 
Offline
Comrade

Joined: Wed Oct 08, 2014 4:41 pm
Posts: 619
Has thanked: 17 time
Have thanks: 25 time
maybe the blow out price of oil, with oil majors accounting for some 35% of total profits in the (non-financial) US might have had something to do with it? Might have put a crimp or two in the flow of funds?

The fact that after 5 years of severe restraint on capital spending, the bourgeoisie hit it with a vengeance, with predictable impact on the rate of profit had a bit of a chilling effect?


Report this post
Top
 Profile  
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Mon Sep 26, 2016 2:56 am 
Offline
Comrade
User avatar

Joined: Thu Dec 27, 2012 6:10 pm
Posts: 416
Has thanked: 26 time
Have thanks: 31 time
sorry but by "blow out" do you mean the rise of the oil price (and its peak in 2008).

And what period does the 5 years of restraint on capital spending refer to (2003-08?)


Report this post
Top
 Profile  
 
 Post subject: Re: The Federal Reserve Interest Rate
PostPosted: Mon Sep 26, 2016 7:53 am 
Offline
Comrade

Joined: Wed Oct 08, 2014 4:41 pm
Posts: 619
Has thanked: 17 time
Have thanks: 25 time
The restraint on capital spending was (approx.) 2001-5. Yes, blow out means the inflated price of oil


Report this post
Top
 Profile  
 
Display posts from previous:  Sort by  
Post new topic Reply to topic  [ 20 posts ]  Go to page 1, 2  Next

All times are UTC - 6 hours [ DST ]


Who is online

Users browsing this forum: No registered users and 2 guests


You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot post attachments in this forum

Search for:
Jump to:  
Donate Now
Donate Now



Hosted by © 2017 FreeForums.org | Create a free forum | Powered by phpBB
About FreeForums | Legal | Advertise Here | Investors | Contact FreeForums.org
Report Violation

Design By Poker Bandits  

suspicion-preferred