Lucius, it's funny that the monetary goal is to promote maximum employment and moderate long term interest rates. The stable prices goal is reasonable.
The Fed cannot determine long term interest rates [not meaning 30 yr bonds, but the average interest rates charged over a period of a decade]. The interest cash holders will accept is a function of the risk they see in holding money. The risks are that inflation will eat away their holdings, that they'll die before they get to spend it, that there will be revolution or something and it will be outright pinched from them, that alternative investments return more than simply lending it, or that the borrowers are dodgy and will fail.
Everyone holding cash measures up those risks as best they can understand them and decides to continue holding cash or not. Alan Green$pan can't determine the interest rates they'll accept. If he 'lowers' interest rates, they'll sell their money to somebody else in exchange for some other investment or some consumption. The new owner of their money will not want to pay much for such a rotten thing as a low interest endangered species as cash so will not give many Q! shares for the money. Which means that the Q! shares will be very expensive.
Alan can lower interest rates, but only temporarily. People will abandon money and so borrowers will need to offer more to get some loaned to them. If Alan Green$pan prints a whole lot more and lends it out, he devalues = dilutes in stockholder language the existing cash holders. Look how many expletives were expended on this thread when trivial dilution by Q! was done in exchange for equal value in cash [6.9m shares at $156.50]. It's amazing that those same people can't understand that it's the same thing when Alan Green$pan issues more stock [money], therefore diluting existing stockholders [those with money on deposit] but those stockholders don't get anything in exchange.
Those naive stockholders accept it only because they haven't figured out yet how much they are being ripped off. They think that inflation is low and they are getting interest above the rate of inflation so think their capital is being conserved. Poor suckers.
The other absurdity is to think that monetary policy can somehow promote maximum employment. All it can do is maintain financial stability, which means stable pricing of some sort. Employment is a function of economic activity. Once stable monetary policies are set, there is nothing more that monetary management can do. Politicians are the ones who stuff things up with idiotic C-block auctions, wars, free trade restrictions and stuff like that.
Meanwhile, the game goes on and most in this thread seem to think lenders should lend at low rates. If they think lenders are on such a good deal, how come they are goofing around in the stock market instead of lending money? To answer that, it's because they see only their simple-minded interest rather than how it all works. They think that low interest rates are somehow 'good'. But they don't think low ASPs are good for ASICs by Q! Funny that.
Actually, high interest rates are 'good' because it means there is a lot of competition for finances to do things. It means that people can get good returns on new investments. That's a desirable thing. Not, of course if there is high inflation and that's why there are high interest rates. But with zero inflation, if high interest rates are sustainable, that would mean the economy is booming.
In Japan for example, the economy is flat and interest rates are flat as a pancake. That's not good.
Meanwhile, inflation is about to get a good boost because crude oil is at a 2 year high, with prices doubled from the low. That means higher prices on air travel, cars, steel, aluminium, paint, plastic, paper, electricity and everything else. It means the Dow will head down.
It means interest rates will go up. If you don't like it, sell your Q! and hold cash now before the rush.
Mqurice
PS: Not you personally LuciusML, this is just a general rant!!! |
