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| I should have read "it can never be anything but a market where supply is controlled." Supply of money is controlled by the Central Bank, so the interest rate market, while it can look like it is a free market at times, is actually never a free market. If we have an oversupply of money relative to qualified demand, interest rates go down. The demand side can be a free market, but the supply side is always controlled (but it hasn't been *obviously* controlled in what appear to have been more stable times). I've had trouble understanding this, and just maybe my view now is too simple, but it sure seems like increasing the supply of money has made for lower interest rates, in spite of the conventional thought that the expectations of higher inflation must result in higher interest rates. My view is consistent, however, with normal supply and demand analysis. Increase the supply (like corn currently) and price goes down.
My thought is that it is very possible that a deflationary spiral cannot always be controlled. When modeling markets, I have always tried to look at what is being done (how is the money being bet) rather than what is being said. What scares me most right now is that the bankers/politicians are so terrified of a deflationary spiral that they are willing to guarantee (it seems) the bankrupting of the pension plans in the longer term. | |
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The 4.5 trillion dollar balance sheet. Continued QE
