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Are Low Interest Rates Good?

Tyler Durden's picture




 

In a perfectly succinct follow-up to Last Friday's Santelli-Kaminsky CNBC-aberration discussion of the now status quo financial repression (low interest rate / QE environment), this two-and-a-half minute clip asks and answers the seemingly simple question of whether low interest rates are good. Borrowing and saving are really about whether to consume more now or later (or more later and less now) and we agree with Professor Antony Davies that these decisions are best left to individuals - and not the nanny-state/Fed. Each person's judgment of what is best for them is replaced by the Federal reserve's judgment and the free market interest has become a thing of the past (for now). Lower rates don't mean more spending; they mean more spending now and less in the future.

 

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Sun, 06/03/2012 - 21:32 | 2490495 Dear Infinity
Dear Infinity's picture

Good for them -- not us.

Sun, 06/03/2012 - 22:11 | 2490585 BankRiot
BankRiot's picture

Tyler,

Have you heard any rumors of JP Morgan cancelling employee vacations this summer in order to prepare for a financial collapse this summer?

thanks!

-Bankriot

http://www.examiner.com/article/market-rumor-pimco-and-jp-morgan-halt-vacations-to-prepare-for-economic-crash

Sun, 06/03/2012 - 22:19 | 2490605 X.inf.capt
X.inf.capt's picture

OH hell

this just gets better and better...

WTF......bitchez!

Sun, 06/03/2012 - 23:03 | 2490685 I think I need ...
I think I need to buy a gun's picture

someone on twitter said pimco did

Sun, 06/03/2012 - 22:41 | 2490643 Max Fischer
Max Fischer's picture

 

 

No.  It was encouraged that employees not travel to Europe for vacation, due to possible violence and uncertainty with the valuation of the Euro. Employees are still able to block out vacation time, and travel wherever they please. Additionally, some meetings scheduled in Europe are being re-scheduled for NYC. 

MF

Sun, 06/03/2012 - 22:56 | 2490670 Harlequin001
Harlequin001's picture

Do you work for JP Morgan?

Mon, 06/04/2012 - 06:29 | 2491027 neidermeyer
neidermeyer's picture

I'd be happier to hear that all executive level banksters had their passports suspended in anticipation of charges ... or that the O had decided to balance the budget by having the IRS go after past due amounts and penalties on failed REMIC's....

Sun, 06/03/2012 - 22:41 | 2490644 JackT
JackT's picture

Nice find. Anyone else hearing this?

Sun, 06/03/2012 - 23:35 | 2490737 lolmao500
lolmao500's picture

I wouldn't mind 0% interest rates if the goddamn FED gave 0% interest money to EVERYONE not just their buddies at the big banks...

Sun, 06/03/2012 - 22:50 | 2490655 AlaricBalth
AlaricBalth's picture

No, however I did hear at a derivative conference that the financial collapse was cancelled this summer in order for the JPM employees to enjoy their summer vacations in the Hamptons.

Don't you know that the TBTF banks control world financial events, not vice versa.

Sun, 06/03/2012 - 22:58 | 2490673 Harlequin001
Harlequin001's picture

Haven't they deferred the collapse until Wednesday?

Mon, 06/04/2012 - 00:17 | 2490815 Trimmed Hedge
Trimmed Hedge's picture

"Have you heard any rumors of JP Morgan cancelling employee vacations this summer in order to prepare for a financial collapse this summer?"

 

Ah, yes.. the well-timed "leak"... Like clockwork.

A little more downward pressure as the big boyz finish gobbling up 'em shares -- u know, right before QE3 is announced....

Sun, 06/03/2012 - 23:04 | 2490496 cdude
cdude's picture

Good for whom? Perspective makes all the difference.

Sun, 06/03/2012 - 21:33 | 2490497 bugs_
bugs_'s picture

Is free gas good?

Sun, 06/03/2012 - 22:03 | 2490561 Long-John-Silver
Long-John-Silver's picture

Only is you ate free beans.

Sun, 06/03/2012 - 21:34 | 2490500 tu-ne-cede-malis
tu-ne-cede-malis's picture

If the quality of these LearnLiberty videos (and many, many others) isn't an indicator of Higher Education's future irrelevance, then I don't know what is.

Sun, 06/03/2012 - 21:48 | 2490530 Taint Boil
Taint Boil's picture

 

 

Good point.

Sun, 06/03/2012 - 21:35 | 2490503 you enjoy myself
you enjoy myself's picture

"they mean more spending now and less in the future"

well, yeah, but that's a feature and not a bug when you're a politcal actor that only thinks in 1-4 year horizons.  IBGYBG.  Ben just wants to make it to 2014, Obama and Congress only gives a crap about making it to this November.


Sun, 06/03/2012 - 21:36 | 2490506 buttmilk
buttmilk's picture

Can i get more now and later.

Sun, 06/03/2012 - 21:59 | 2490548 Cursive
Cursive's picture

@buttmilk

It works until we hit a brick wall or fall off a cliff.  1950 to 2000 was pretty incredible, especially if you medicated yourself through the 1970's.

Sun, 06/03/2012 - 21:38 | 2490513 Sabibaby
Sabibaby's picture

I don't understand why we can't spend more now and spend more later?

 

WTF this guy is obviously a jerk!

Sun, 06/03/2012 - 22:33 | 2490630 Matt
Matt's picture

That would require more jobs, more pay for working (and not just nominally, but on a more absolute scale) AND higher savings. That's preposterous.

Sun, 06/03/2012 - 22:48 | 2490651 Sabibaby
Sabibaby's picture

I guess that's the point of this thread then... why save when you have more insentive to spend?

 

This will end badly :(

Mon, 06/04/2012 - 06:50 | 2491045 zhandax
zhandax's picture

.

Sun, 06/03/2012 - 21:41 | 2490515 surf0766
surf0766's picture

The only way they were able to keep pushing rates down was to manipulate inflation lower so the sheep would not think they were being hurt buy higher prices.

When the final print happens the sheep will still not understand.

Sun, 06/03/2012 - 21:44 | 2490517 Alpacanio
Alpacanio's picture

Asian markets are tanking ATM...

Sun, 06/03/2012 - 21:43 | 2490519 A Lunatic
A Lunatic's picture

There won't be a fucking later..............

Sun, 06/03/2012 - 21:48 | 2490529 Sabibaby
Sabibaby's picture

It unanimous then, SPEND NOW!!!

Sun, 06/03/2012 - 22:06 | 2490568 Cursive
Cursive's picture

@Sabibaby

This actually does explain much of the consumer spending over the last 3 years.  The other driver has been the cost of inflation pushing those expenditures ever higher.  Inflation really works great for TPTB.

Sun, 06/03/2012 - 22:13 | 2490590 Sabibaby
Sabibaby's picture

That makes a lot of sense. Does the consumer have reason to be concerned or are they preparing for something? I;m guessing movies and big screen tv's but I suspect a few might have something else in mind...

Sun, 06/03/2012 - 21:46 | 2490524 JustObserving
JustObserving's picture

US debt is too high to afford normal interest rates - so they have to be very low. We are running $1.5 trillion a year deficits now  If interest rates were like those in the 90s, we would be running $1.9 trillion deficits a year.

The Fed has no choice but to keep interest rates low so the US can service its debts.

 

Sun, 06/03/2012 - 21:48 | 2490528 midgetrannyporn
midgetrannyporn's picture

no fed, no debt. problem solved.

Sun, 06/03/2012 - 22:59 | 2490678 vast-dom
vast-dom's picture

i'm giving u a +1 just for that name son!

Sun, 06/03/2012 - 22:04 | 2490563 mickeyman
mickeyman's picture

But if the Fed thinks that low interest rates will boost employment, they have another think coming. Why borrow money to build factories when at zero percent you can afford to keep borrowing and gambling on a leveraged Martingale strategy until you win.

Sun, 06/03/2012 - 22:35 | 2490633 Matt
Matt's picture

So the solution is for banks to charge a higher margin ontop of prime. This will help banks make more profit, encourage people to reduce debt, while keeping interest low for the Federal Government, which cannot possibly be expected to spend responsibly.

Sun, 06/03/2012 - 22:38 | 2490635 surf0766
surf0766's picture

How about we switch to GAAP and not cash accounting and state the real deficit of $5 trillion per year. Who manipulated inflation rates to allow the push down  in interest rates. How many decades did they know this was coming?

Sun, 06/03/2012 - 21:47 | 2490526 Stock Tips Inve...
Stock Tips Investment's picture

One of the functions of prices (and the interest rate is a price) is to convey information. When the price of a product rises, investors and consumers are receiving information. There is much demand for this product or there is insufficient supply or there is a run or any other reason. But investors and consumers "receive" information and make our own decisions. When you "manipulate" the interest rate, you are looking for investors and consumers to behave in certain ways. But this is a price "artificial" in the long run, the market takes care that the price reflects what is really happening between supply and demand. When this finally happens, the consequences can be disastrous.

Sun, 06/03/2012 - 21:56 | 2490542 q99x2
q99x2's picture

Abolish the FED.

Sun, 06/03/2012 - 22:15 | 2490597 X.inf.capt
X.inf.capt's picture

when interest rates go up

and they will go up....

you wont have to abolish the fed....it will collapse all by its self....then we may see a gold standard...if were lucky enough to live through the collapse...and austerity...and riots...and another world war...and the zombies...

*sigh*

Sun, 06/03/2012 - 21:56 | 2490543 Eireann go Brach
Eireann go Brach's picture

Everyone on here should wipe their arse with a $20 bill and then mail to the Fed and Bernankes attention with a note that says "you are full of shit".

Sun, 06/03/2012 - 22:01 | 2490550 A Lunatic
A Lunatic's picture

Can we use a Ten instead? I rather like Andrew Jackson.

Sun, 06/03/2012 - 22:06 | 2490571 urbanelf
urbanelf's picture

Stay away from me Lucky Charms!

Sun, 06/03/2012 - 22:02 | 2490556 FreeMktFisherMN
FreeMktFisherMN's picture

At least I was heartened to get a dollar bill in change last week that had 'End the Fed' coming out of GW's mouth. 

 

As far as interest rates, I cannot even fathom when people say they used to be in the teens. Then again I'm only 21 and for most of my life in which I've been aware rates have been egregiously low. 

Sun, 06/03/2012 - 22:10 | 2490583 azzhatter
azzhatter's picture

I had an 11 3/4% mortgage on my house in 1979 with 20% down payment

Sun, 06/03/2012 - 22:27 | 2490621 FreeMktFisherMN
FreeMktFisherMN's picture

imagine that; legitimate lending standards.

 

 

Sun, 06/03/2012 - 22:06 | 2490572 Let them eat iPads
Let them eat iPads's picture

Not nearly as funny as cartoon bears, but succinct, to the point and easy enough for the average Ameretard to grasp.

Sun, 06/03/2012 - 22:08 | 2490577 Thunder_Downunder
Thunder_Downunder's picture

But but... what if everyone tries to save at once.. won't we be ... doomed? If capital is withdrawn in a capital constrained environment, wont the cost of capital rise? Rewarding the selfish penny pinching savers, and encourage more hoarding? Wont that unfairly punish the speculators by destroying the marginal returns they're barely achieiving... AKA big banks...?

 

Our keynesian friends tell us that only the wealthy can safely accumulate...  if the foolish masses start saving too the world falls apart, hence they must be forced to spend and take risks... so that the wealthy can consolidate their wealth and save us from the booogie man of recession. And to save us from all the foolish investments we made whilst being forced to spend....

 

I for one, salute the central banks of the world. Saving us from certain doom, and gifting us with a less certain but no less inevitable one :D

Sun, 06/03/2012 - 22:09 | 2490578 azzhatter
azzhatter's picture

It's killing me, I am consuming my seed corn

Sun, 06/03/2012 - 22:09 | 2490580 Bunga Bunga
Bunga Bunga's picture

Lower interest rates mean thicker mattresses bitchez!

Sun, 06/03/2012 - 22:11 | 2490584 FieldingMellish
FieldingMellish's picture

We have become: consume more now and more later.

Mon, 06/04/2012 - 02:42 | 2490920 AnAnonymous
AnAnonymous's picture

That is a fact.

Sun, 06/03/2012 - 22:19 | 2490607 Lokking4AnEdge
Lokking4AnEdge's picture

 

 

NEW YORK (MarketWatch) -- Cyprus may seek financial aid from its European neighbors as early as this month, making it the fourth country to tap the region's temporary bailout fund, according to media reports.

The tiny island nation may need a bailout to recapitalize its banks, which are feeling the effects of the crisis in Greece, its neighbor, the country's central bank governor has told the Financial Times.

Panicos Demetriades said the country was at "an important crunch time," according to the newspaper Sunday.

The Wall Street Journal reported on Saturday that Cyprus' second-largest bank is seeking government aid, which would deeply strain the island's public finances and make it miss this year's budget targets.

Michalis Sarris, Popular Bank's chairman, told the FT "it is hard to see where [the capitalization] is coming from, if not Europe."

Cyprus is already rated below investment grade by two major rating agencies and it pays a yield around 14% on its 10-year bonds, according to the Journal.

The central banker's comments came shortly after Demetris Christofias, the president of Cyprus, said it wasn't certain whether the country would seek a bailout, but he couldn't exclude the possibility, according to the BBC.

Christofias said at that time Cyprus also was looking at contingency plans if Greece leaves the euro, because his country's financial system's exposure to Greece is estimated to be more than its total gross domestic product, reports said.

Mon, 06/04/2012 - 00:07 | 2490794 yogibear
yogibear's picture

Pump  another 100 billion, it just delays the economic adjustment.

Sun, 06/03/2012 - 22:29 | 2490625 jefe95
jefe95's picture

Did this guy not hear what Larry Summers said????

 

This is way too logical to be absorbed by TPTB.

Sun, 06/03/2012 - 22:34 | 2490628 ThirdCoastSurfer
ThirdCoastSurfer's picture

How can so many economists be so completely blind to the eloquence of Adam Smith regarding the important role of interst rates versus the damage of usury & its counterpart? Proves that universities are nothing more than diploma mills. 

Without interest there is no interest. <<--Contemplate the interchangability of the meanings for a moment. 

Plenty of interest in auto sales! How can this be? The lower the interest the higher the MSRP. And what is the real rate of interest being charged anyway? Not 0% for most despite what the ad says. You might pay $30,000, but the capital at risk for the lender is negligible if defaulted. What else can you say that about? Certainly credit cards do not reflect the fed rate. 

Sun, 06/03/2012 - 22:39 | 2490638 Matt
Matt's picture

The rate on credit cards is based on prime + risk of default. People who can only get 29.99% cards are only eligible for that because they are at a high risk of default.

Practically anyone who has a credit card for over 5 years with a good payment history and good credit score, with low debt, can get a Line of Credit card with interest around 5 to 7 percent if unsecured, and closer to 3 if secured by a house.

Sun, 06/03/2012 - 22:32 | 2490629 mrpxsytin
mrpxsytin's picture

Did someone forget to tell this professor that new people get born every year?

We're living in a continuous life cycle. So there will ALWAYS be people who can spend more now. And either way it doesn't make a difference because if the older generation spends more now they will offset the younger generation who is spending less now and visa versa.

His argument is totally ridiculous. Is someone of the age of 80 going to spend any less now so that they can spend more when they're dead?

 

Mon, 06/04/2012 - 06:53 | 2491057 Withdrawn Sanction
Withdrawn Sanction's picture

Is someone of the age of 80 going to spend any less now so that they can spend more when they're dead?

Beqeusts.

Sun, 06/03/2012 - 22:40 | 2490639 YesWeKahn
YesWeKahn's picture

The problem is that Bernanke thinks that he is the smartest person on earth. That has a lot of problems.

Sun, 06/03/2012 - 22:51 | 2490661 Ancaeus
Ancaeus's picture

The basic premise of this video is flawed, as a simple example will show.

Consider the case of an entrepreneur who borrows to start a business.  If he/she  is successful, then borrowing to spend more now results in MORE spending later, as compared with simply saving money to spend later.

I am not coming down on either side of the question -- I do not favor either lower or higher interest rates.  However, I do favor arguments that are not manifestly flawed; arguments that cannot withstand event the slightest scrutiny without crumbling.

The subject video claims that the "market" interest rate is, for some reason, better than a rate determined by our current system.  Yet, the video does not do any of the following:

(1) State clearly what it would mean for the prevailing interest rate to be better or worse.  What objective criteria should we use to judge whether rates, however arrived at, are good or bad?

(2) Justify why market mechanisms are likely to produce interest rates with those qualities.  Justiy why alternative mechanisms (such as Fed intervention) are not likely to produce similar rates.

Instead we are treated to an argument with the same etiology as a religious orthodoxy -- received wisdom that should not be questioned.  Bow down before Adam Smith!  Or rather, bow down before a caracature of Adam Smith -- that he would have disowned.

Sun, 06/03/2012 - 23:10 | 2490696 vast-dom
vast-dom's picture

objective criteria would simply say that if the interest rates were a kind of market guage, then it would follow that synthetically manipulating said rates by the Fed would give you an aberrant read and a malfunctioning market.

the point here is that the fed is destroying the marketplace by not allowing interest to settle into their true rates as function of market participants. your e.g. of entrepreneur also applies in this case as well; variables such as the kind of biz model this entrepreneurial endeavor would result in and how interest rates may impact the actual business as prospective consumers of said biz would be impacted by artificially lowered interest rates, etc etc etc. so in the end the video makes it's point in general terms perfectly. 

remember: banks are no longer in the business of banking, in no small part thanks to the fed. 

Mon, 06/04/2012 - 00:21 | 2490823 Ancaeus
Ancaeus's picture

Let the record show that Vast-Dom has not answered the question. 

Why are some rates better than others, regardless of how they are arrived at?  To claim that rates are better because they were set by some particular means (as you do) simply begs the question.

Consider two nearly identical states in which economic conditions are essentially identical (means of production, level of labor participation, wages, everything).  There is one exception:  in one of the two states, call it "A", market forces determine the interest rate.  In the other state, call it "B", the precisely identical rate is set by a dictator.  Aren't the people and businesses of these two states equally well off from a purely economic standpoint? 

If you accept that economic conditions in the two states are identical, then let's focus on state B.  What purely economic criteria could we use to judge the quality of the dictator's interest rate decisions?  Once you have articulated those criteria, show, with a convincing argument, that market mechanisms can produce such decisions.  If you try to argue that ONLY market mechanisms can produce such interest rates, then I will throw this example right back at you!

If you do NOT accept that economic conditions in the two states are identical, then explain how some purely economic actor (who has no access to politics) could distinguish that he lives under the system of state A or state B.

Mon, 06/04/2012 - 05:54 | 2491006 Diplodicus Rex
Diplodicus Rex's picture

Ok, I'll bite.

The problem with your argument is that you start with a false premise. In your thought experiment you consider that at a given moment in time, two entities which, in all other respects are the same with the exception of how interest rates are set, are equally well off. You then go on, based on that premise, to ask the question how they can be anything other than equally well off. The implied assertion you are making is that with the two differing interest rate mechanisms, both societies could arrive at the same point in time, equally wealthy. The point being made in the video is that this is not the case in reality.

I therefore put it to you that the premise of your argument is wrong.

In other words:

" A man was travelling through Ireland attempting to get to Dublin when he gets lost. He stops and speaks to a passer-by for directions. The passer-by replies"To be sure...if I was going to Dublin I wouldn't be starting from here" "

Mon, 06/04/2012 - 11:47 | 2492157 Ancaeus
Ancaeus's picture

Let the record show that Diplodocus Rex has not answered the question either!  He (or she) instead objects to the question.

Well, let me come back to my original point:  The video assumes, without justification, that market mechanisms produce better interest rate decisions.  I am simply asking for that justification, if it exists. 

I am still waiting!

 

Sun, 06/03/2012 - 23:03 | 2490686 Reverse Split
Reverse Split's picture

So now we should be spending more money on hookers to jumpstart the economy.

Sun, 06/03/2012 - 23:10 | 2490695 junkyardjack
junkyardjack's picture

It'd be better if you spent more on things legally as they can effectively taxed, Oxycodone will do...

Sun, 06/03/2012 - 23:11 | 2490697 vast-dom
vast-dom's picture

don't forget adderall! 

Sun, 06/03/2012 - 23:04 | 2490688 lolmao500
lolmao500's picture

Very bullish...

http://www.examiner.com/article/market-rumor-pimco-and-jp-morgan-halt-va...

Market rumor: Pimco and JP Morgan halt vacations to prepare for economic crash
Sun, 06/03/2012 - 23:08 | 2490694 junkyardjack
junkyardjack's picture

Bear trap....

Sun, 06/03/2012 - 23:06 | 2490690 junkyardjack
junkyardjack's picture

If everyone just spends more now we will be fine, new babies can grow up and they spend more now as well.  When people get old and can't spend anymore we'll put them on a cruise ship that crashes into a pile of plastic in the middle of the ocean...

Sun, 06/03/2012 - 23:06 | 2490691 blindman
blindman's picture

zero interest rates is dilution of the value of
credit or directing credit solely to the institutions
that have extended credit irresponsibly and detrimentally.
it is usury compounded to the degree of stealing
the value of the currency from savers and giving
the value to the institutional con artists who control
the banking and governmental sectors. that is what
zero interest rates are, fucking stealing in
broad daylight. you can call it what you like but
i know what the fuck it is. but, this is the nature of fiat money so what would one expect other than a
wagon full of pseudo-intellectual hog shit to call it otherwise? this is why the benefit of this con
should belong to a "people" and not to a board of
bankers bent on blood sucking and flesh eating predicated
on ancient family feuds.

Sun, 06/03/2012 - 23:12 | 2490701 vast-dom
vast-dom's picture

nigga please u can finally see! 

Sun, 06/03/2012 - 23:26 | 2490723 blindman
blindman's picture

the problem with rap is the lines,
vocals, should be guitars or horns
or keyboard, but are replaced by
the tedious vocal. i miss the melodic
possibilities and potential. that is,
what the fuck? we lose the muse and
gain the chain of the earth bound, nigga.
re above, the structure of the system overtakes
the purpose of the function of the system
and we end up with fascism and prisons for
the masses of the asses.
what i seek to see is the unseen, consequently
and finally,
that makes me blind in perpetuity.
blind but... always looking, never seeing.

Sun, 06/03/2012 - 23:35 | 2490738 vast-dom
vast-dom's picture

you can add DEAF too!

Sun, 06/03/2012 - 23:47 | 2490754 blindman
blindman's picture

and soon dumb,
check this out and tell me what you
think it means for the coming generations
if there be anymore?
The Evolving Path of Interaction
http://www.youtube.com/watch?v=duaFcFdTFwE&feature=relmfu
.
enjoy it while it lasts, i agree with that.

Mon, 06/04/2012 - 06:56 | 2491061 ebear
ebear's picture

The problem with rap?  It's been around waaaay tooooo looooong is what.

http://www.youtube.com/watch?v=O4o8TeqKhgY

I mean, seriously, when is this shit gonna die?

Sun, 06/03/2012 - 23:12 | 2490702 gwar5
gwar5's picture

Low interest rates manipulate and encourage rational people to borrow and spend. The FED is the house dealer making up the rules, and we mustn't fight the FED.

 

We over consume as a society and many went nuts during the housing bubble. But I can't blame individuals for getting herded into housing, only to be the bagholders. Goldman Sachs was doing it, but they made the market for the suckers. The vast majority don't know it's a rigged game and are just trying to muddle through life the best they can with the cards the dealer gives them.  

A rational person might buy equities now to protect against low interest rates and inflation, so here we go again. Repression ain't just for drycleaners anymore. 

Sun, 06/03/2012 - 23:21 | 2490715 CommunityStandard
CommunityStandard's picture

As both a consumer of the information and a fellow Youtube creator, I'm always impressed with LearnLiberty's videos.  Way to go.

Sun, 06/03/2012 - 23:22 | 2490717 LawsofPhysics
LawsofPhysics's picture

Are low interest rates good? Only if you really believe that there is no real cost for creating capital without any adding any real value. Common sense should tell you otherwise. This is made worse by capital mis allocation and no rule of law. Good luck, possession is now the law, got physical assets of real value or tradable skills? You better.

Sun, 06/03/2012 - 23:25 | 2490722 cnhedge2
cnhedge2's picture

Is the Euro Ending or Beginning?
http://www.cnhedge.com/thread-6926-1-1.html

Sun, 06/03/2012 - 23:27 | 2490724 Uchtdorf
Uchtdorf's picture

Bubbles, bubbles, bubbles everywhere. Pop goes the weasel. Let's get it on and get it over with.

Sun, 06/03/2012 - 23:32 | 2490727 Seasmoke
Seasmoke's picture

NO THEY ARE NOT

Sun, 06/03/2012 - 23:34 | 2490730 lolmao500
lolmao500's picture

Zombies are roaming in Florida...

http://www.youtube.com/watch?feature=player_embedded&v=4awVqRr1eCo

Hilarious...

Sun, 06/03/2012 - 23:54 | 2490766 Seek2survive
Seek2survive's picture

I see a world with people and governments who will borrow more now or already have borrowed a bunch but I am not so sure of their intentions or ability to pay it back in the future. Other than that I like the video.

Mon, 06/04/2012 - 00:12 | 2490802 blindman
blindman's picture

low interest rates are good if you think
eating or euthanizing your parents and grandparents
is good. some people are perfectly content with
that. fine. i hope they feel the same way when their
children decide they are worth more dead, which will not
be long from now; and as has been repeatedly stated
it is a built in requirement of the monetary system
that this generation would eat its own parentage.
have at it "folks". there are spices and flavorful pickles to add as condiments to cover the loss of natural flavor.
thank the fed for the delicious and inexpensive
condiment opportunities.

Mon, 06/04/2012 - 00:15 | 2490809 sansnobel
sansnobel's picture

Interest rates are where they are because they have to be. Otherwise our wise keepers in Washington wouldn't be able to borrow money to turn over their debt. The Fed can never let rates rise unless you want to cut govt expenditures by 1/3 or Taxes have to go up to cover the reduced amount of money borrowed if markets were allowed to set interest rates. I say what the Fed says is pure B.S. Oh we see a rate rise round 2014, yeah right....No Benny Bucks, I think people are starting to see you have tipped your hand. Rates can never be allowed to rise otherwise the govt will not be able to borrow money anymore, and that would be a great thing for the US citizens, but terrible for the Spendthrifts that fancy spending other peoples money they never earned or had the balls to lay a tax upon out of fear of what the political mob would do to them. They are in a corner like Japan, It will be QE to infinity and beyond

Mon, 06/04/2012 - 00:24 | 2490827 FranSix
Mon, 06/04/2012 - 01:15 | 2490864 Floodmaster
Floodmaster's picture

 

 The US bond market is the most obvious bubble ever.

 

Mon, 06/04/2012 - 01:29 | 2490875 luckylongshot
luckylongshot's picture

This talk is given on the assumption that interest rates can be allowed to rise without destroying the economy. The huge volume of debt that now exists means this assumption is naive. The choice the central banks are facing is whether we have a financial meltdown sooner or later and low interest rates and printing money delay the ineviatable crash while making the problem bigger.

Mon, 06/04/2012 - 02:49 | 2490925 AnAnonymous
AnAnonymous's picture

This US citizen is unsurprisingly caught in the middle of the river. He seems to wish for conservation while remembering that in US citizen economics, savings are consumption.

Unsurprisingly because he is a US citizen middle class and US citizen middle class are notorious for wishing for the best of the two worlds while shifting the worse on a third party.

Therefore the answer is clear: US citizen governments follow the trend, they manage.

The trend is given by US citizen middle class that knows that consuming right now is much better than postponing consumption when you have triggered a race to deplete the world resources.

Consume now, and you might get something to consume.
Postpone consumption and well, who knows?

Mon, 06/04/2012 - 04:34 | 2490973 TheFourthStooge-ing
TheFourthStooge-ing's picture

AnAnonymous said:

in US citizen economics, savings are consumption.

Made me laugh. The inadvertent comedic entertainment value of Chinese citizenism is eternal.

Consume now, and you might get something to consume.
Postpone consumption and well, who knows?

Ah, ah, postponement of consumption would mean money is saved and not spent. However, according to your Chinese citizenism theory of US citizen economics, saving is consumption. Thus postponement of consumption is equivalent to immediate consumption.

This is a perfect example of the stunning capability of Chinese citizenism citizens to embrace contradictory ideas simultaneously and see no conflictment. Thus is shown the impossibility for self indiction in Chinese citizenism.

Prediction: the next step of Chinese citizenism is to deny contradictment, sailing around iceberg of self indiction. Good entertainment value for all.

Mon, 06/04/2012 - 06:21 | 2491021 AnAnonymous
AnAnonymous's picture

Money is debt.

Money is saved, debt is saved.

The next step is not to deny a contraction that does not exist. The next step is as usual underline how natural it is for US citizens to project themselves onto others and let others fix the mess for them.

_____________________________________

saving is consumption. Thus postponement of consumption is equivalent to immediate consumption.

________________________________________

Swooping to a new low, even for an addict to fantasy.

Disregarding any qualifier?

Postponed consumption(savings) is consumption. Thus postponed consumption is equivalent to immediate consumption. That is what thinking with the constraints of US citizenism leads to.

Waooo, grand. Powerful. Gripping.

I know that fantasy is fantasy and that US citizens have inherent troubles with time and the flow of time, but still, but managing to end like that...

Mon, 06/04/2012 - 06:54 | 2491059 TheFourthStooge-ing
TheFourthStooge-ing's picture

AnAnonymous, backpedaling furiously, said:

The next step is not to deny a contraction that does not exist.

Yes, sure. Nice evasion of the point. I spoke of contradiction, not contraction.

But you already knew that.

Swooping to a new low, even for an addict to fantasy.

Ah, now trying to blame your failings of logic on your addictions? How pleasantly imitational of 'US citizenism' of you. Are you sure you're not a French citizenism citizen?

Disregarding any qualifier?

Just using your own words of fanatical fantasy: "in US citizen economics, saving is consumption."

Denialism and offuscationism are strong components of your Chinese citizenism fantasies. Bear with it.

Postponed consumption(savings) is consumption. Thus postponed consumption is equivalent to immediate consumption. That is what thinking with the constraints of US citizenism leads to.

Ah, well, if only you could escape your self constructed fantasy world of 'US citizenism', then you might be able to free your mind from the constraints you've imposed on your thinking.

The crusty part is this is the eternal tragedy of Chinese citizenism. Avoidance of self indiction requires you to create external fantasy worlds (like US citizenism) so you can push all blame to the exterior.

Waooo, grand. Powerful. Gripping.

Yes, your fantasies appear quite real to you, so naturally you would see them as grand, powerful, and gripping. Quite a Chinese finger trap you've constructed for your mind downthere. Did you construct it from loose straws that fell from all of the strawsmen that you have made?

I know that fantasy is fantasy and that US citizens have inherent troubles with time and the flow of time, but still, but managing to end like that...

Ah, yes, time discontinuities and confusion regarding the flow of time are your hallmark. Tell us again your strawsman story of how 'US citizenism' sank Easter Island before any contact whatsoever with 'US citizenism'. Entertain us.

Mon, 06/04/2012 - 08:28 | 2491204 AnAnonymous
AnAnonymous's picture

You made much out of a typo.

In US citizen economics, saving is consumption.

The article says nothing different by the way.

-----------------------------
Borrowing and saving are really about whether to consume more now or later (or more later and less now)
________________________________
Mind to elaborate on that or running away and taking harbour a world of fantasy, clinging to a typo to make a point.

Wishing for symetry is a powerful addiction.

Mon, 06/04/2012 - 08:38 | 2491228 GoingLoonie
GoingLoonie's picture

You are correct because our currency is not true money, which would be an extinguisher of debt (gold or silver).

Mon, 06/04/2012 - 08:46 | 2491246 JOYFUL
JOYFUL's picture

Chinbot is ameltin down! Clingin to fantasies of eastern ascendancy means Big trouble in Big Chinatown....

Hey Chum-li! If yu can't take the heat, stay outta the wok!

 

Mon, 06/04/2012 - 10:52 | 2491910 TheFourthStooge-ing
TheFourthStooge-ing's picture

AnAnonymous said:

You made much out of a typo.

Ah, ah, very crafty Chinese citizenism trickery with words making here on display now being. First in play is try to offuscate using word of similarly spelling. Failing that due to ruse being seen through transparently, now typo is focus of shifting to exterior blaming.

Very Chinese citizenish indeed.

In US citizen economics, saving is consumption.

Yes, sure, but only in your fantasy world of 'US citizenism'.

The article says nothing different by the way.

-----------------------------
Borrowing and saving are really about whether to consume more now or later (or more later and less now)

While borrowing is about spending now as opposed to spending later, saving is about not spending now, delaying spending for a short while or long term, and possibly not spending at all. Additionally, spending is not equivalent to consumption, as productive assets may be purchased, such as farmland or machinery.

Your words from previously:

Consume now, and you might get something to consume.
Postpone consumption and well, who knows?

This lays bare the fact that your statement, "in US citizen economics, saving is consumption," is pure malarkey. The available choices are "consume now" or "save now". In your own words, "postponed consumption(savings) is consumption." Thus, according to your scrambled up in the head sideways logicality (savings = consumption), the choice of "save now" is equivalent to "consume now".

Mind to elaborate on that or running away and taking harbour a world of fantasy, clinging to a typo to make a point.

Made me laugh. Running away is your traditional strong suit of cards in hand. You are the one clinging to a typo to defend your fantasies from self indiction. As for taking harbour in a world of fantasy from the storm of insanitation, that too is your crusty jack in trade, the escape into fantasies of 'US citizenism'.

Wishing for symetry is a powerful addiction.

A trite, meaningless statement. A good example of the eternal nature of Chinese citizenism malarkeyism. Keep constructing strawsmen to populate your fantasy world of 'US citizenism'. Keep waving offuscation like a magical talisman to ward off self indiction.

At least your gyrations provide amusement.

Mon, 06/11/2012 - 07:50 | 2513849 AnAnonymous
AnAnonymous's picture

While borrowing is about spending now as opposed to spending later, saving is about not spending now, delaying spending for a short while or long term, and possibly not spending at all. Additionally, spending is not equivalent to consumption, as productive assets may be purchased, such as farmland or machinery.

_______________________________________________

An interesting framing. Suddenly, the words are changed. Spending is not equivalent to consumption because productive assets may be purchased?

Productive assets? What are those? Production is consumption. Machinery, farmland are consumption.

Please name one human production process that is not consumption.
This is a requirement to introduce the flimsical distinction between spending and consumption.

This said, I stick to my statement: saving is consumption in US citizen economics. If you want to introduce spending vs consumption, do it on your own.

____________________________________________

This lays bare the fact that your statement, "in US citizen economics, saving is consumption," is pure malarkey. The available choices are "consume now" or "save now". In your own words, "postponed consumption(savings) is consumption." Thus, according to your scrambled up in the head sideways logicality (savings = consumption), the choice of "save now" is equivalent to "consume now".

___________________________________________

Waoo, that is big. US citizen logics.

Death at an old age is death.

Death as a young age is death.

Death is death, therefore young age is the same as old age.

Waoooo, new low.

Now, something more important than these failures at most basic logical levels.

The importance of advocate for saving:

delaying spending for a short while or long term, and possibly not spending at all.

Not spending at all. Which might mean that the expected consumption act when the decision of postponing it no longer exist.

Mon, 06/11/2012 - 08:54 | 2514000 TheFourthStooge-ing
TheFourthStooge-ing's picture

More Chinese citizenism malarkey. Saving is not consumption. Why not just admit it?

Instead you construct fantasy upon fantasy to shore up your rickety construction known as 'US citizenism'.

The reason is quite plain for all to see: you just like to criticize and disagree. If one disagrees with you, even polite disagreement, you launch into diatribe blaming all of the world's ills, from the past into the future, on US citizenism. If one agrees with you, you criticize and claim those who agree with you are wrong because their intellect is enfeebled compared to you and they cannot possibly comprehend the delicious subtlety of your profound theorizations. You change agreement to disagreement to accommodate your weirdo fetish for disagreement.

You are sickness inside the head of yours being. Somehow your response is very something.

Mon, 06/04/2012 - 08:36 | 2491217 GoingLoonie
GoingLoonie's picture

Correction:

Our currency is debt.  

True money (gold or silver) is not debt, it is savings.  As A. Fekete would say, it is the only true extinguisher of debt.

Mon, 06/04/2012 - 03:52 | 2490960 kedi
kedi's picture

Interest rates can be any amount as long as they are in balance with the economy in general. But they are not. Another article today talks about debt not being wealth. The subjects intersect somewhat. High interest rates can be fine if the economy is growing at a fast enough rate to keep debt being paid off in a reasonable time span. This means the borrowers have to share in the growth. Not be isolated in stagnated or falling wages. If the benefits of growth are not being spread around enough high interest rates speed the growth of a debt bubble. For too long real wages have stagnated or dropped for the large mass of consumers. Even the current low interest rates create an ever growing debt load.

The borrowers are to blame as well. They have believed that they will be able to get ahead even while borrowing to do it. The lenders have done their part to make this believable with advertising and the media and government helping for so long by saying everything is always getting better. Or going to get better now.

Meanwhile those lenders counting debt as wealth acquire real goods with it. Often borrowing against debt to acquire even more. The real goods, often being productive businesses become saddled with the debts that were used to buy them, passing on those debt servicing costs to customers, who may actually need to borrow to buy from the business.

Too many people want everything now. Rich, middle class and poor. We have been sold on the idea we can have it now. So we embark on a never ending debt cycle. It is not the interest rates. It is the increasing rate of borrowing and the decreasing ability to repay. We borrow more than can be repaid to keep the debt bubble from growing.

It is definitely a problem that wealth is concentrating ever more to the lenders and away from the borrowers. But that wealth is illusion. The cycle has reached it's end. Debt that cannot be paid will cease to be seen as wealth.

An increase in interest rates will hasten this reality. But it is coming soon enough. After it falls apart, the lenders will be more careful with what real wealth they still have. The borrowers will be demanding a bigger share of the real wealth every payday so they do not have to borrow so much.

Mon, 06/04/2012 - 05:28 | 2490996 slackrabbit
slackrabbit's picture

This video is ok, but like most they don’t explain the effect of Interest that you DO NOT pay in the future if you save today....and no I am not including interest rates on deposits, but excluding the interest rates of loans on spending today.

On TV for example they always compare 10,000 borrowed today vs. 10,000 in the future, 

When in fact its

10,000 vs. 10,000 and an extra disposable incomes because you don't pay $interest on the loan

I find this annoying because you have more spending in the future - assuming of course the loan rate is bigger than the inflation rate - thanks for that screwing that Ben

 

Tue, 06/05/2012 - 18:15 | 2494757 honestann
honestann's picture

Not only that, but they NEVER compare the results of frugality-and-saving versus spending-everything in the context of real savings, which means physical gold (or other precious metal or other durable physical good).

Let's make a simple comparison of the past 10 years.  Let's compare:
 - #1: borrow and spend $100,000 in 2002.
 - #2: buy ~200 ounces of physical gold.

NOTE: In 2002, 300 ounces of physical gold cost about $100,000 but if we purchased gradually over the past 10 years from our income, we would only have accumulated slightly over 200 ounces because we were buying as the price was rising.

Now today, which of those two is in better shape?

#1A: If they spent their borrowings on parties, vacations and spiffy goods at the mall, today they have virtually NOTHING to show in 2012 for the $200,000 they paid on their 10-year mortgage loan (against their parents home, presumably).

#1B:  If they took a 10-year mortgage to purchase a $100,000 home, the home still sells for about $100,000 today.  Over the past 10 years they paid about $200,000 in mortgage payments (about half principle and half interest + expenses).  By expenses we mean expenses to offset wear, tear, home insurance, property-taxes, etc.  We assumed they took a 10-year mortgage, which has them paying much less interest than the more common 30-year mortgage.  So today in 2012 they own their $100,000 home, which is still worth about $100,000 according to case-shiller.  Note: 2002 is BEFORE the housing bubble, so we're not constructing a jiggered scenario like buying at the top of the bubble.

#2:  From 2002 to 2012 we spent the same $200,000 to pay rent ($100,000) and buy 200 ounces of physical gold over the same period (starting at $300 in 2002 and ending at $1600 in 2012).  At $1600 per ounce, that's $320,000 in 2012 dollars.

Therefore, the saver has 3.2 times the wealth as the borrower.  This phenomenon compounds, so the saver has 10 times the wealth in 20 years, 33 times the wealth in 30 years, 105 times the wealth in 40 years, 336 times the wealth in 50 years, etc.

If you wonder why western countries are spiraling down the tubes, it is because this phenomenon works the same for countries/governments as it does for individuals.  Thus any country that never borrows a dime ends up with a vastly superior economy, just as debt-avoiding individuals end up with vastly superior lives.

The analysis above is actually very generous to the borrower.  For example, most people take 30-year mortgages, which end up paying a far higher percentage in interest.  Furthermore, the saver probably has a more frugal mindset, which means he spends unwisely less often.  This makes a huge difference in the long run, as this too is subject to the phenomenon of compounding.  This analysis also ignores the advantage people have when they are not in debt.  Their lives are vastly more flexible, which often lets them take advantage of special opportunities when they arise (like a much better job far away, which is easy for a renter but often not a home-owner (not even counting the usual 12%~16% losses for selling their home and buying another in the new location).

The fact is, as a life-long saver (never borrowed), I keep noticing new, unexpected ways that others with debts have disadvantages.  The ONLY "advantages" they have are short term (if they waste their borrowings on transient goodies, not a home), but they pay for that in spades in lost flexibility and quality-of-life in the long run.

Mon, 06/04/2012 - 06:31 | 2491029 TWSceptic
TWSceptic's picture

Sounds so simple, is so simple, that's probably why our retarded politicians and bankers don't get it or don't want to get it. Things need to sound complicated to be convincing to them.

Mon, 06/04/2012 - 07:16 | 2491088 Downtoolong
Downtoolong's picture

I love being a rebel. I've been sellng my bonds right into the Fed's face for two years now. It's a ten year plan so, I've got plenty more to go. Keep pumping them up Ben. Hurt me some more. I will be victorious, and you know it.

Mon, 06/04/2012 - 08:47 | 2491249 Budd aka Sidewinder
Budd aka Sidewinder's picture

Greatest scam of all time.  Incredibly artificially low interest rates combined with the largest population demo ever to hit the country forced/encouraged/abetted the biggest push to current spending/borrowing to finance it ever.  The current olds are salved with SS/Medicare to appease them until they croak to offset their inability to earn a return on their savings which they did en masse as children of the Depression.

I don't know anyone over 70 that hasn't hoarded/saved money like crazy and don't know anyone under 70 that hasn't borrowed and spent as well.

Mon, 06/04/2012 - 22:58 | 2494648 honestann
honestann's picture

Well, you are correct in general, but a few of us in our 30s~50s are frugal.  Speaking for myself, I've never taken a loan, not even a mortgage loan.  If I don't have very much savings, I get hyper-frugal.  If I have a reasonable amount of savings, I loosen the belt and become only modestly frugal (compared to most morons AKA westerners).  Oh, and when I say "savings", I mean physical gold.  And paper is not savings.  Paper money and bank deposits are not savings, stocks are not savings, bonds are not savings - they are scams (more so every month).

The wiseness of being frugal should be obvious to everyone.  Maybe it is, but people ignore what they know to be wise and just "party on".  Don't ask me, I don't know why most people are overwhelming morons, especially when it comes to their own lives and futures.  Actually, I do know why they act like morons --- they're brainwashed and "socialized" (which makes them think its okay to be stupid if many others are too).

I look at human behavior and wonder how other humans can be so exceptionally stupid.  The answer, of course, is that hardly anyone today knows how to operate their own consciousness.  I mean, really!  Your consciousness decides your every action, and your every action leads to consequences which you (and/or others) must suffer or bear --- or enjoy if your actions were wisely chosen.  So how can anyone not understand the value of learning what is consciousness, how it works when it works well, and then habituating those valid, productive, beneficial processes?  Yes virtually nobody on the entire planet does.

Which is why we truly do live on the planet of the apes, controlled by:
 - predators DBA government
 - predators DBA corporations
 - predators DBA central banks

-----

PS:  One specific comment about the video.  The fact is, during most times in history, high interest rates are the best time to buy --- especially if you've been saving, but also if you haven't.  How is that?

When interest rates are high, the prices of homes (and other goods to some extent) FALL.  People simply cannot make the huge mortgage payments that would be required on expensive homes, so home prices tend to fall to a price where people can make the payments.  If you're paying cash, or a large down payment, this is BY FAR the best time to buy --- because you get the best price possible (the best value).

But even if you're making a small down payment, this is the smartest time to buy as long as you are willing to make the huge payments for a few years until mortgage rates fall.  At that point you re-finance and realize low interest-rate and low payments, and you typically do better than buying at the higher current prices when interest rates are low.

But hey, most people never question conventional wisdom, so most people never notice these almost-obvious facts.

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