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Negative interest rates coming?
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cfdr
Posted 11/24/2014 12:53 (#4198532 - in reply to #4197372)
Subject: RE: Negative interest rates coming?


Reading what Mises wrote about this makes me thing that he was an academic and certainly not a trader. The idea that "the abolition of interest payments would induce the owners of capital to consume rather than invest it" seems wrong to me. IMHO, if anything, it could make it more likely that capital was hoarded rather than consumed. What zero interest does, again IMHO, is to price things such that there is no ROI for everything. Does this cause a lack of investment - could easily be. Does it cause consumption? Not likely, as it would be even more imperative to people with money to hoard it, since there is nothing attractive to invest in, and there is no way to replace money spent in consumption. Granted, the only money the investors have to spend is already accumulated capital, but they would be very very cautious in spending that. IMHO, of course. It should cause the velocity of money to go very low - and stay very low.

I have to admit that my thoughts are leading me to a place where I would prefer not to go - a possible depression. Is this where zero interest rates lead? I do have problems with the quote - "consumption in the present will always be preferred to consumption in the future" - as I think the reaction to zero rates will be a slow-down of consumption in the near term. But - - if zero interest rates result in what I see happening - a lack of investment opportunities for a lot of people with investment capital, and their income drops due to this, they will have to draw on their "owned capital" for consumption.

The one problem Mises does not address - unless I've missed it and you can explain it to me - is the problem of a concentration of capital. We all know why Central Planning with the Left is an absolute disaster. It results in a lack of incentive, and it leads to depression. But, and I have been thinking this for a long time now, on the Right, we end up with too few people having all of the marbles. The vast majority of us become "renters" - serfs, in other words. This, IMHO, leads to the same place - depression - due to a lack of opportunity. Again, IMHO, we are seeing at least the beginnings of this now. Hopefully, it is a cycle and not an irreversible trend.

The conclusion is good - with the addition of the concern I state above. But, how to accomplish this without going through a depression??

For anyone reading this - these are just the thoughts of a poor dirt farmer. I welcome reading any views that show me where my reasoning is faulty.
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