On Fri, May 31, 2013 at 9:43 AM, Michael Torrie <[email protected]> wrote:
> I guess time will tell. I don't believe having a prime rate of zero is
> sustainable. Though it's doing a great job of enriching people at the
> expense of those who are frugal savers.
If by "frugal savers" you mean people who essentially stuff their
money in a mattress, I've already explained why that's not *really*
helping anyone, even in the absence of inflation. Money was invented
to be a liquid asset to facilitate trade, not to "store value".
That's what goods/commodities with real value are for.
I don't think anyone believes that having the prime rate at zero
long-term is a wonderful thing, but the Fed is limited in what it can
do. It's essentially a system designed to counter extreme fluctuation
in the prices of real goods by dampening swings in the money supply.
Although imperfect, it's a stabilizing force in an inherently unstable
system. You can be sure the prime rate will rise as soon as economic
indicators suggest that aggregate demand is increasing sufficiently to
raise prices across the board sufficiently to take inflation above the
target rate, because that's just what the Fed does.
Whether you (not you specifically, but speaking in general) appreciate
it or not, pretty much all the economic growth and efficiency gains
that have made us one of the wealthiest nations in the world and have
made it possible for us to all have lots of nice things like cars and
houses are due to the power of credit and its flip-side, debt. These
can't exist in a way that provides the necessary liquidity for
economic growth without entities that are essentially banks. Banks
are a two-edged sword; they're powerful, but easily abused, so it's
critical to closely monitor and regulate their operation to ensure
that they function to the public's benefit. We kind of dropped the
ball on that one, and I'm not really happy about the way that it was
handled, but my ire is not really directed at the Fed.
--Levi
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