So you will know when they lower rates that it was a serious economic mistake

From America, a conclusion which applies here with even more force than there since rates in the US have been rising: Trump’s Keynesian Monetary Policy.

The New York Times reported today on Trump’s advocacy of easy-money Keynesianism.

President Trump on Friday called on the Federal Reserve to cut interest rates and take additional steps to stimulate economic growth… On Friday, he escalated his previous critiques of the Fed by pressing for it to resume the type of stimulus campaign it undertook after the recession to jump-start economic growth. That program, known as quantitative easing, resulted in the Fed buying more than $4 trillion worth of Treasury bonds and mortgage-backed securities as a way to increase the supply of money in the financial system.

criticized these policies under Obama, over and over and over again….

Regardless of whether a politician is a Republican or a Democrat, I don’t like Keynesian fiscal policy and I don’t like Keynesian monetary policy.

Simply stated, the Keynesians are all about artificially boosting consumption, but sustainable growth is only possible with policies that boost production.

Why raising rates is good for production is to modern ears a complete conundrum. Think of this from The ABC:

The RBA concedes it is puzzled by the “tension” between strong jobs growth and a weak economy.

If the jobs data is right, then everything is OK and unemployment will fall, wages will rise and it will be high-fives back in the RBA’s Martin Place redoubt.

If GDP data is right and things are slowing — remember GDP grew at an annualised pace of just 1 per cent in the second half of last year — then a cut is order.

Absolutely incomprehensible to a modern economist is the absence of any relationship between the rate of growth and unemployment. Just as incomprehensible is the possibility that lowering interest rates from the low rates they are presently at might actually do harm and do no good whatsoever at all.

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6 Responses to So you will know when they lower rates that it was a serious economic mistake

  1. stackja

    MF wrote Fed Res was inept during 1930s. More ineptness?

  2. Bruce of Newcastle

    Low rates just means that no one can invest at higher rates and make a profit. Therefore very low rates, like now, are a proof that the government has made profitability nigh on impossible.

    The logical response is to reduce the dead hand of government on business, whereupon they will do the rest.

    Trump has done part of this by reducing tax on profit, and has pushed to lower input costs as well by removing red and green tape. So the US is booming. Funny that.

    Here we have both major parties strangling business and wondering why no one will borrow money to invest even at insanely low interest rates. The animal spirits have been sucked dry by the vampires of Canberra.

    And now they all want to crush business and profitability even more with stupid renewable energy and EV policies, which are crazily expensive, to save us from a problem which isn’t even happening.

    Who will wield the silver stake and the garlic? The voters have been so propagandized that they no longer know of anything else but tax peonism.

  3. So much of this misery could be avoided if people read von Mises’ Human Action and understood how inflationism creates destrictive credit and business cycles.

  4. Dr Fred Le

    In typcal socialst fashion keeping interest rates very low creates its own momentum ,bigger borrowing recklesslending ,foolish spending and monstrous debt ,public and private ,inflated house prices and making housing unaffordable , a huge hole ,and like all good socialists they keep digging deeper . If rates increase the whole false edifice collapses in a screaming heap ,so they are caught in a trap of their own making ,uts what happens when you send a boy to do a mans job ,career pliticans the svum of the earth who should be eliminated with extreme predjudice and abolished for eternity.

  5. Johnsnowybowyer

    Just increase rates slowly, firmly and with notice. Weak useless companies will go under and strong well managed ones will rake over their assets. Savers will be at last rewarded. The alternative is to further destroy savers and then what? I remember my parents who went through the depression saying save not borrow. What will young people say to their children when it all fails?

  6. gary

    US Budget deficit for first six months of financial year is $US691 billion. On track for an annual deficit of $US1.4Trillion. ($AU2Trillion )
    It seems that at least for now that debt doesn’t matter.

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