Question on interest rates

[mark_mnc1]

Besides reading a few books already on Austrian economics I feel like I have a lot of questions left over.  I have one on interest rates.  Feel free to let me know where and went I'm wrong if I am here-right now in the U.S. interest rates should be much higher because of the lack of saving by individuals, business, organizations, etc (not talking about the government spending here) leads to less money available in the economy, right?  On the other side, if people had saved there would be more money in the banks available to be lent out and the interest rate could go down-is that part right?  Obviously right now interest rates are down artifically because of the fed pumping money into the system.  How is that money pumped in?  Is it through fractional reserve banking or another one of the feds practices? Also, how and when does short and long term lending (getting a loan for a car, house, business project, etc) come in?   

I was going to ask this on the Mises site's forum but I tried to log in and wasn't available and I'm not sure if the Mises profs would take the time to answer this. I'm guessing the people on here seem pretty knowledgeable about this kinda stuff and could answer in some detail.  Thanks.

Mark 

[Osborne]

Get a PhD in economics. Then you still will not be able to answer this question and will wonder what the hell you spent four years doing.

[Branlin]

Besides reading a few books already on Austrian economics I feel like I have a lot of questions left over.  I have one on interest rates.  Feel free to let me know where and went I'm wrong if I am here-right now in the U.S. interest rates should be much higher because of the lack of saving by individuals, business, organizations, etc (not talking about the government spending here) leads to less money available in the economy, right?  On the other side, if people had saved there would be more money in the banks available to be lent out and the interest rate could go down-is that part right?  Obviously right now interest rates are down artifically because of the fed pumping money into the system.  How is that money pumped in?  Is it through fractional reserve banking or another one of the feds practices? Also, how and when does short and long term lending (getting a loan for a car, house, business project, etc) come in?  

I was going to ask this on the Mises site's forum but I tried to log in and wasn't available and I'm not sure if the Mises profs would take the time to answer this. I'm guessing the people on here seem pretty knowledgeable about this kinda stuff and could answer in some detail.  Thanks.

Mark  

I've read a lot about this too, especially in the past two years. I'm not quite sure how the Fed "pumps" money into the system, but I think they loan it to banks at ridiculously low interest rates. Fractional reserve banking is when if, say, a bank has $1 million in actual deposits, but loans out $5 million. Or something like that as I recall. (Google it, there's plenty of info on it.) In effect, they have "created" $4 million in wealth. But it's not real wealth.

Beyond that, and to me this is self-evident (I've believed this for many years and didn't actually read this anywhere) interest rates should NOT, EVER be manipulated by the Fed or anyone else. Interest rates are the price of money. Like all free markets, the price of something is a signal that encourages those involved to balance the supply and demand.

To people who think this is baloney (probably no one here!), then they have to believe in central planning, where government bureaucrats set the price of goods and services -- totally insulated from market signals. This is what we have with the Fed and the collapse of the real estate market.

[Turd Ferguson]

Peter Schiff explains it all pretty good here.

http://mises.org/MediaPlayer.aspx?Id=4004

[MacFall]

Peter Schiff explains it pretty well in that presentation, too.  

[Turd Ferguson]

Peter Schiff explains it pretty well in that presentation, too.  

Pretty GOOD too 

f--k proper english

[BobRobertson]

Yes, the interest rate would be higher, but don't fall into the trap of trying to _set_ it higher. It's the setting itself that causes problems, not just what the rate is.

Increased savings drives down interest rates, increased demand increases interest rates. That balance is very dynamic and needs to be left alone in order to function at all.

The Fed, in this "stimulus", is actually giving banks and GM and etc, money. Crediting their bank accounts by adding zeros to their bank's balance the bank are required to carry at the Federal Reserve. They don't even need to print the bills or coin the metals any more.

But the bank itself, with the "fractional reserve" system, gets to loan out 9 times that money, which is what really exacerbates the inflation of the monetary base.

Retail lending will follow, but most people realize they don't want to get into debt right now. It's not that banks aren't loaning, it's that people know the fecal matter is striking the atmospheric impeller.

At the same time, the "sub prime" crap burned lots of fingers, so that same "loan on just your signature" isn't happening, and the people with good credit scores are the very ones tightening their belts for the coming storm.

If you ask on the Mises.org forum people will answer. Better would be to watch the daily articles until one comes up that is somewhat related, and then ask in that comment area while it's "new" and people are actively checking it.