Althouse: "The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt."

September 11, 2019

"The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt."

"INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet..... ....The USA should always be paying the the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of 'Boneheads.'"

Tweets Trump.

104 comments:

rhhardin said...: The interest rate is whatever is needed to target inflation. You want to reduce the money supply until it matches what the economy can do at once, but without any of the economy going idle. Selling debt reduces the money supply, buying it back increases it.

Trump wants the busy economy but isn't tweeting the other side, too much is too much.; 9/11/19, 6:39 AM
rhhardin said...: Negative interest rates seem to be a feature of low birth rates. I don't understand the dynamics of it.; 9/11/19, 6:43 AM
rhhardin said...: The fed can't control long term rates, only short term. Long term rates are mostly affected by anticipated inflation. If the fed is proflagate short term, you expect long term inflation, and long term rates go up to match.

Except for the negative interest rate dynamics that I don't understand.; 9/11/19, 6:46 AM
Ann Althouse said...: Instead of feeling bad that my money in the bank is making next to no interest, I should be glad the bank isn't charging me anything for holding my money for me.; 9/11/19, 6:46 AM
henry said...: negative interest rates seem a really bad idea. That suggests negative return on investment in pension funds-- which for places like state and local government are already underfunded.; 9/11/19, 6:47 AM
rhhardin said...: If you're a bank you'd do better than negative interest rates by getting currency and stashing it Scrooge McDuck style in your vault. That would seem to cap rates at a minimum of zero, not negative.; 9/11/19, 6:47 AM
Mark said...: Lowering it to zero eliminates the Feds ability to adjust in case of a slowdown.

I have never found it wise to paint myself into a corner and I am happy the Fed has refused to.; 9/11/19, 6:48 AM
rhhardin said...: You're better off with zero interest so long as it's also low inflation. Then you don't get taxed on inflation, as you do when you earn say 5% on your savings.; 9/11/19, 6:49 AM
rhhardin said...: It's the log of the interest rate that the Fed ought to think of itself as controlling, not the interest rate. Then the fed can always lower it and it never goes to zero.; 9/11/19, 6:51 AM
Once written, twice... said...: If Trump really believes that the broad U.S. economy is so strong then why is he trying to bully the Feds into providing stimulus?; 9/11/19, 6:52 AM
rhhardin said...: Pension funds were set up to pay less than they seem to promise, by way of your pension being paid in hugely inflated dollars worth much less than seemed to be promised.

That's the same thing as earning a high yield on them while they're invested. The yield came from that inflation.

So the interest rate isn't what screws the pension funds but the lack of inflation. They'd been counting on inflation.; 9/11/19, 6:54 AM
traditionalguy said...: The foreign owned Bank we are told to call the Federal Reserve Bank is not an American institution any more than the Bank of China.It has existed soley to print our currency under a now expired Contract. But by tacit agreement it has also been used to crash the American economy on signal from its owners, whom, after they have bought up tranches of Bank repossessed assets at pennies on the dollar, have the Foreign FED refloat economy to restore the insider's stolen loot's value.

DJT will soon replace it with a US Treasury that acts in the USA's best interest.; 9/11/19, 6:55 AM
rhhardin said...: Japan has trouble trying to get people to spend, and it's explained that a negative interest rate is a way to force them to spend, to the extend that they fear to hold large amounts of cash (which would be riskier than the interest rate problem). Japan has been trying to get 2% inflation and has been unable to cause it.

Which is why I think it's a birth rate problem.; 9/11/19, 6:58 AM
stlcdr said...: Trumpanomics?; 9/11/19, 6:59 AM
Bill, Republic of Texas said...: Deflation is the answer to rh question about lack of inflation and birth rates. The west and Japan have aging populations and excess capacity.

Trump is right about duration. We should have 50 and 100 year notes.

He is wrong about negative interest rates. But what to do when all your competitors have gone negative.

The Fed are boneheads. They never should have aggressively raised interest rates last year going into a trade war and slowing manufacturing. My guess is they were trying to tank the economy to hurt Trump but Trump fought back.; 9/11/19, 7:00 AM
Once written, twice... said...: With his tax cuts and supporting exploding federal spending Trump has dangerously ginned up the economy. He knows that at some point it will fail. He is now trying to get the Feds to further gin up the economy so he can get re-elected next year.

If there where any true fiscal conservatives here you would be castigating Trump for growing federal spending faster than any president in the last half century.; 9/11/19, 7:01 AM
henry said...: funny thing about growing spending... all spending bills originate in the House. Thus spending growth is on Ryan and Pelosi, not a President.; 9/11/19, 7:05 AM
Oso Negro said...: One thing I will always enjoy about this Presidency is the public mocking of the elites.; 9/11/19, 7:07 AM
rhhardin said...: We do have 100 year notes. You just roll over the 30 year notes. Most debt is more than rolled over. That's how the national debt goes up.

Long notes have call features that limit their ability to sell; the government gets to call them back after say ten years with some declining payment of a penalty, which is a heads-we-win tails-you-lose feature. You can't lock in the interest rate you're thinking you can.

Corporate bonds have the same feature, so it's just a standard.; 9/11/19, 7:08 AM
jeremyabrams said...: We voted on whether Trump would be president, and Powell sits at a further remove from the public than Trump does. So I consider that I hired Trump to use the bully pulpit against bureaucrats wherever he feels it is called for.

Also, Powell proved he doesn't know what he's doing earlier this year by nearly tanking the markets. He's been neutered by his own actions, and now Trump is moving the Overton window farther along to increase the pressure. Good.; 9/11/19, 7:09 AM
Once written, twice... said...: Trump proposed budgets that exploded spending. He also never threatened to veto any appropriation bills because of too much spending. Instead, he shut down government because there was not more spending to build his wall.; 9/11/19, 7:09 AM
Once written, twice... said...: The spending growth is on Trump.; 9/11/19, 7:11 AM
Bill, Republic of Texas said...: There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.

Just so people don't think we are leaving nutters talking about the Fed trying to influence the election. This quote is from a former fed governor!

And people say Trump is a threat to the norms.; 9/11/19, 7:13 AM
Bill, Republic of Texas said...: Leaving nutters=raving nutters; 9/11/19, 7:15 AM
Chuck said...: Hmm, yeah; the debt.; 9/11/19, 7:17 AM
tim maguire said...: Hmmm...if we get the interest rate down to zero and then refinance for an op-en-ended term, then we never need to pay!

Like magic, the entire debt goes away!

U-S-A! U-S-A!

MAGA! MAGA!; 9/11/19, 7:23 AM
Earnest Prole said...: Bankruptcy made Trump a wild success, and now he's ready and willing to do the same for America.; 9/11/19, 7:25 AM
rehajm said...: If there where any true fiscal conservatives here you would be castigating Trump for growing federal spending faster than any president in the last half century.

I'm critical of it, but he's not the worst. Obama was...; 9/11/19, 7:32 AM
iowan2 said...: If there where any true fiscal conservatives here you would be castigating Trump for growing federal spending faster than any president in the last half century.

Presidents don't spend money. The House of Representatives does.

But I'm good with shutting the govt down for a couple of months to get the House to do the right thing.; 9/11/19, 7:36 AM
rehajm said...: If you're a bank you'd do better than negative interest rates by getting currency and stashing it Scrooge McDuck style in your vault. That would seem to cap rates at a minimum of zero, not negative.

That's why there have been some calls to eliminate currency in favor of all electronic transactions.

You can still get creative and avoid negative rates. Most of it feels stupid and counterproductive to a healthy economy. Prepay bills, prepay taxes, gift cards, rolling over cashier's checks, probably bitcoin (it's not a currency according to IRS). The killer app is a barter economy.; 9/11/19, 7:40 AM
Amadeus 48 said...: Trump is behaving like a real estate promoter who finds himself POTUS. It is predictable but not pretty.

Low on negative rates from the other big economies plus the Fed’s decision to rollover its $4 trillion balance sheet have caused US govt debt to go low in a peppy economy. If you are negative in Japan and Germany 1.6% from the US looks pretty good to a big investor.

We are in uncharted waters, folks. Trump doesn’t know anything you don’t, but free money always looks good to the Donald. By the way, lengthening the duration of our debt is a good idea. I wonder if we can?; 9/11/19, 7:45 AM
rehajm said...: I'm also not opposed to Trump jawboning the Fed, especially since they've felt compelled to retort. The pants peeing about it is politically asymmetrical, as is most of the pants peeing.; 9/11/19, 7:46 AM
Amadeus 48 said...: When I say”go low” I mean low interest rates. Bond prices are high.; 9/11/19, 7:47 AM
Chuck said...: iowan2 said...
If there where any true fiscal conservatives here you would be castigating Trump for growing federal spending faster than any president in the last half century.

Presidents don't spend money. The House of Representatives does.

I'm so confused. The House originates spending bills; but who does tax cuts?; 9/11/19, 7:56 AM
rehajm said...: Presidents don't spend money. The House of Representatives does.

Last I knew the President can sign or veto spending bills. At least partial credit is deserved.; 9/11/19, 7:59 AM
Amadeus 48 said...: We have lower marginal rates but record high tax receipts. I wonder how that works?
I agree there is a spending problem, but the Tea Party people were evil racists, right?
There is no lobby for lowering spending in DC since Obama ignored Simpson-Bowles and Paul Ryan pushed Grandma off the cliff.; 9/11/19, 8:07 AM
daskol said...: Given that pension funds require inflation as rhhardin ntes, and that besides those obligations govt at all levels is the biggest debtor, we can probably expect bipartisan inflationary desires for the foreseeable future. The more we borrow the greater our need for inflating away some of the value of that debt. Those on fixed incomes should perhaps think of their forgone returns or if inflation is instigated their reduced purchasing power as an investment in the solvency of our country for the younger heneration, since we can't very well ask them to lay back and think of the Queen being as we are a republic.; 9/11/19, 8:13 AM
Amadeus 48 said...: On the spending side, we got here because Obama got his stimulus bill, and the government was financed by continuing resolutions for the next eight years, so we got the stimulus X 8.
Both parties were OK with that.; 9/11/19, 8:14 AM
Birkel said...: Think how much lower interest rates would help employment, as our rates are now higher than ROW.
And if unemployment falls, imagine how well Trump will do with minority communities in 2020.

Dan Bishop won a county that is 35% black, last night.
It was a big reversal of the most recent elections.

LLRs and Leftists everywhere:
Do you think quadrupling down on "Racism!" will help?; 9/11/19, 8:15 AM
Amadeus 48 said...: Savers have ben sacrificed to feed re-election of incumbents. They showed those Tea Party people who runs things!; 9/11/19, 8:17 AM
wild chicken said...: This is my biggest problem with Trump, his jawboning the Fed. I liked the higher rates and we were still doing well tegardless. Trumo the developer is talking and the Realtwhores must love him.

I had hoped Powell was above all that noise apparently not.; 9/11/19, 8:20 AM
daskol said...: The part I really don't understand besides negative interest rates is what global capital from affluent low birth rate countries is going to do to our capital markets as our relative yields increase. That money must find its way here.
As if low real interest rates weren't already enticing people and companies into debt, plentiful capital is going to emphasize that. Lending standards will have to decline as they did in the early aughts, I suppose.; 9/11/19, 8:21 AM
Amadeus 48 said...: The Donald knows a lot about situations where receipts are less than expenditures, but I don’t think that prudent financial management is his strong suit.; 9/11/19, 8:23 AM
Anonymous said...: Easy money. What could ever go wrong with easy money policies? All you have to do is just keep it up, year after year, right?; 9/11/19, 8:26 AM
daskol said...: What is prudent financial mgmt of an unmanageable debt load?; 9/11/19, 8:27 AM
Birkel said...: Amadeus 48 @ 8:14AM is correct.
Obama's average yearly increases to debt are bigger than Trump's.
But Obama had "off the book" spending of the "Stimulus" each year.

Interest rates encourage proper allocation of resources toward risky investments.
Zero interest rates (and worse, negative ones) are an admission that central banks have lost control.

The only way for Europe or Japan to recover - if they can - is to get out of the way of human ingenuity.
America must do the same.
Command economies fail.
There is no other option.; 9/11/19, 8:28 AM
rehajm said...: Not to belittle the concerns of fix incomers pining for the days when the rate on your passbook savings account started with a larger integer, but there was inflation back then so your real rate was crap.; 9/11/19, 8:29 AM
John henry said...: The New York Stock Exchange, NASDAQ and other exchanges are privately owned companies. They have no govt connection at all.

The Securities and Exchange Commission (SEC) regulates them. SEC is a govt agency. It's job is to oversee and enforce regulations dealing with exchanges.

One of my pet peeves is people referring to the "Federal Reserve". There are 12 Federal Reserve Banks. These are privately owned entities. They are roughly analogous to the various privately owned stock exchanges.

Then there is the Federal Reserve Board This is a government agency/entity that exists to regulate the Federal Reserve Banks

When people talk about the Federal Reserve I often can't tell which they are talking about, the Board or the Banks.

Please be clear which you mean in discussions, folks. It makes a huge difference.

In this case, though I wish he had been more explicit, it is clear from the context that PDJT is talking about the Federal Reserve Board, not the Federal Reserve Banks.

John Henry; 9/11/19, 8:40 AM
Michael K said...: Once written, twice... said...
With his tax cuts and supporting exploding federal spending Trump has dangerously ginned up the economy.

What a shame when you are so counting on a recession to get Trump.; 9/11/19, 8:42 AM
Jeff said...: Negative interest rates are a really bad idea. Lending would dry up, because no one in his right mind is going to lend money at a negative rate when he could just hold currency and get a guaranteed rate of zero. For the math-impaired out there, zero interest is better that negative interest if you're the lender.

Zero inflation is also a problem. The economy adjusts to changing conditions and technology by changing relative wages and prices. If some occupation, like LASIK technician in the late 1990s and early 2000s, suddenly is in high demand, the free market adjusts by paying those technicians more, and that causes more people to go into that line of work. When the demand drops off, as it has for LASIK technicians this decade, their wages drop and some of them depart that field for greener pastures.

But there's a problem with this story. In the real world, dealing with real human beings, hardly anyone ever gets a pay cut. If you cut the pay of your employees, many of them are going to be pretty angry about it, and morale will plummet. And you might feel guilty about it yourself, since your employees all have rent payments or mortgages that don't go down just because their paychecks did. Generally speaking, cutting nominal pay is a last-resort action of an employer that's about to go under, and everybody knows it.

So how do we maintain flexible real wages when individual nominal wages are only flexible in one direction? Two or three percent inflation, that's how. If the inflation rate is three percent, you can reduce an employee's real wage by 3 percent a year just by not giving him a raise. Sure, that's not pleasant, but it beats trying to reduce the actual nominal number on his paycheck.

The only major economy in recent memory that has operated near zero inflation for an extended period is Japan. Their unemployment rate has remained low as well, but their economy has otherwise been pretty stagnant for decades. In the 1970s people like James Fallows were writing about how the powerhouse Japanese economy was going to bury us. Nobody thinks that anymore.; 9/11/19, 8:46 AM
John henry said...: Blogger Once written, twice... said...

With his tax cuts

What do you mean by this, Once?

Do you mean he cut tax rates? Yes, he did for most Americans.

Or do you mean he cut tax revenues, the amount of money that govt collects in taxes?

Another pet peeve of mine, people being saying "tax cuts" when they actually mean tax rate cuts.

High earners (often miscalled "the rich") are often claimed to be the beficiaries of the tax rate cuts. In many cases they saw their tax rates go up when the deductibility of various state taxes was capped.

John Henry; 9/11/19, 8:47 AM
John henry said...: There are a number of factors influencing interest rates including risk and transactional costs. The biggie, though, is expected inflation over the term of the loan. Way back in the day I was taught that interest rates were generally about inflation rate plus 3%. If inflation was expected to be 5% over the next 30 years, a mortgage would be around 8%.

This is extremely simplistic with lots of other factors to be included such as the expectation whether the mortgage would be held for 30 years. Most are not.

Current Mortgage rates in the US are about 4% for a 30 year conventional fixed mortgage.

Doesn't sound like there is much inflation going on or expected.

John Henry; 9/11/19, 8:55 AM
Jeff said...: When people talk about the Federal Reserve I often can't tell which they are talking about, the Board or the Banks.

Monetary policy is mostly set by the FOMC (Federal Open Market Committee). The FOMC consists of the seven members of the Board of Governors, and five of the twelve Presidents of the regional Federal Reserve Banks. The President of the New York Fed is always one of the five, the other four seats rotate between the other eleven Banks.

In theory, the Board of Governors can by itself set the rates that the Federal Reserve Banks pay on reserves deposited with the system, along with the rate (known as the discount rate) that the Fed lends at. But in practice, the Board follows the lead of the FOMC.; 9/11/19, 8:58 AM
rehajm said...: Please be clear which you mean in discussions, folks. It makes a huge difference.

That one's easy- figure nobody's referring to the member banks. Maybe the comments of one of the more vocal presidents like Bullard or Kashkari but most of the time it's about the actions of the Chair, the governors or the FOMC. It's not really worth worrying about...

I'm with you on the tax cut/rate cut/revenue conflation. It's a political ploy...; 9/11/19, 9:02 AM
John henry said...: What would be the tax implications of negative rates? As I understand US tax law, mortgage interest is deductible from gross income.

If a mortgage or business loan carries a negative 2% rate, does this get added to gross income?

Or is there simply no deduction and no effect?

John Henry; 9/11/19, 9:02 AM
Jeff said...: John Henry,

These days there are more direct ways of measuring expected inflation. The Treasury sells bonds that are indexed to the CPI alongside bonds that aren't indexed. So you can simply subtract rate of an indexed bond from the rate on a corresponding (same maturity) non-indexed bond to get an idea of what the market expects inflation to be over the term of the bond. There are complications having to do with term and risk premia, but they don't really detract much from the story.; 9/11/19, 9:04 AM
John henry said...: Blogger rehajm said...

That one's easy- figure nobody's referring to the member banks

I agree, much of the time. But sometimes they are not and it is often unclear. It would be nice to see a habit of being more explicit.

Starting with the press.

John Henry; 9/11/19, 9:04 AM
Nonapod said...: This whole interest rate thing is one area I strongly disagree with Trump on.

Trump likes metrics. He really likes quantities that he can point at to show he's doing really well, better than anyone else. He's obsessed with seeing the stock market go higher so he can point to it and say "See, it's hit 30000! Look how big that number is!" or whatever. But the stock market is no longer really an accurate measure of how well things are really going in terms of the economy. Perhaps it was along time ago, but over the years I feel it has become decoupled from the general economy and become more like some sort of high risk casino game... or at its worst an outright pyramid scheme.; 9/11/19, 9:05 AM
rhhardin said...: The Treasury sells bonds that are indexed to the CPI alongside bonds that aren't indexed.

The IRS ruined that measurement. They tax you on the inflation increase in value of the bonds even though the bond hasn't paid you that increase, every year.

One out is I-bonds (savings bonds indexed to inflation) but you can't buy very much of them each year, and they mature after 30 years if you don't cash them in. But they have a lower interest rate than TIPS.; 9/11/19, 9:29 AM
PuertoRicoSpaceport.com said...: Jeff,

I am not saying that interest rates are a good way to measure the inflation rate. There are too many other factors for it to be anything other than a gross measurement and there have always been better ways of doing it.

Though even the better ways still leave a lot to be desired.

The point I was making is that if we have low long term interest rates and someone tells you that inflation is about to explode or is much greater than the stated rate (The "real" or "hidden" inflation rate that nobody wants to talk about!!!!) they are probably full of shit.

OTOH, if mortgage rates are 17%, as they were in 82 when I bought this house, and people tell you inflation is under control or not a problem, they also are full of shit.

John Henry; 9/11/19, 9:30 AM
rhhardin said...: The Treasury called in some 40 year bonds around 2002 that were paying something large like 12% in interest, just to show that those calls can happen.; 9/11/19, 9:46 AM
JackWayne said...: Here’s a limited government proposal: Don’t let the government determine interest rates. Let them float to whatever level they may. Let the market decide. Only allow the government to control the amount of printed money. And keep a very close eye on them to keep them from trying to control the economy with the lonely supply. Finally, limit the growth of the USA population. If native Americans don’t produce enough children to reach a 2.2 birth rate, then allow immigration/naturalization to that level and cap it. If Americans go over, 2.2, don’t allow any immigration at all.; 9/11/19, 9:51 AM
Drago said...: This comment has been removed by the author.; 9/11/19, 9:53 AM
Drago said...: Recall that obama had zero% interest rates from 2008 to 2015. ZERO %

obama also had massive deficit spending each year resulting in $1T in additional debt each year.

During this time US GDP growth was anemic, the US continued to bleed out cash by the hundreds of billions to our foreign competitors via Programmed to Fail Trade deals which put the US at a permanent structural disadvantage.

Millions of long term unemployed Americans dropped out of the labor force.

This is what LLR Chuck literally termed a "dream-perfect economy". Not a good economy, or a great economy, or a solid economy.

Oh no.

For LLR Chuck there is only 1 way to describe the "magnificent" obama's economy: "dream-perfect"

"dream-..."

"....perfect"

Well, if that was a "dream-perfect economy", why shouldn't the rates be brought back down to zero? Shouldn't we be trying to recreate the "dream-perfect" conditions for "dream-perfect" economic performance?

I mean, by definition, anything less would be less than "dream-perfect"....

LOL; 9/11/19, 9:54 AM
Wince said...: Trump said...
The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt.

As usual, Trump's opponents feel justified simply rewriting Trump's words to create the negative impression they want, as in ignoring Trump's words "start to".

Notice the dishonesty woven into this CNBC article:
Trump says Fed ‘boneheads’ should cut interest rates to zero ‘or less,’ US should refinance debt

The idea for “refinancing” federal debt is without any modern precedent.

“It’s not viable and could be a significant problem for investors, financial markets and ultimately the economy,” said Mark Zandi, chief economist at Moody’s Analytics. “The debt is not prepayable. There’s a contractual relationship the Treasury has with investors. This isn’t a mortgage, this is U.S. Treasury debt. I think it would be incredibly disruptive to financial markets, and interest rates would ultimately rise, not fall.”

CNBC through Zandi creates the impression Trump thinks the entire US debt can be called-in and "refinanced" -- simply in order to have something for an "expert" to assail Trump for -- when Trump simply said "start to refinance" the debt with lower rates and longer terms as new debt is issued.

I wonder if Zandi was shown or read the actual Trump quote when asked to comment by CNBC?; 9/11/19, 9:57 AM
JAORE said...: My advice:
Invest the JAORE Fund. Units of $10,000, please. I ten years, each JAORE-Bond holder will be returned $9,500.

Gar-ron-teed!

Eliminate the middleman.; 9/11/19, 10:03 AM
Wince said...: John henry said...
What would be the tax implications of negative rates? As I understand US tax law, mortgage interest is deductible from gross income.

If a mortgage or business loan carries a negative 2% rate, does this get added to gross income?

"Negative interest rates" would largely apply to short-term "risk-free" government debt and lending to Fed member banks. Banks would also try to charge depositors negative rates for FDIC-insured "risk-free" deposits.

While putting negative pressure on other interest rates, the interest charged by banks to customers for personal, commercial and mortgage loans would still carry positive interest rates because of the credit risk.; 9/11/19, 10:08 AM
Wince said...: Trump doesn't want negative interest rates.

Trump is just keeping the pressure on the Fed to keep interest rates low and forcing the Fed into criticizing ECB policies.; 9/11/19, 10:13 AM
pacwest said...: Sounds like a lot of you here are making a an argument for devaluation of the dollar.; 9/11/19, 10:52 AM
Char Char Binks, Esq. said...: FREE MONEY!; 9/11/19, 11:01 AM
Darkisland said...: Blogger pacwest said...

Sounds like a lot of you here are making a an argument for devaluation of the dollar.

I've seen this a couple of other places and am confused. Just how would the govt devalue the dollar? Other than by inflation.

Originally, the dollar was valued at 1/20th of an ounce of gold. Or $20 and change per ounce of gold. In the 1820s there was a minor devaluation of 20-30 cents to get gold and silver values of the dollar in line. It stayed there until 1933 (Don't get me started on Lincoln and his monetary policies)

In 1933 FDR devalued the dollar from @1/20th to 1/35th of an ounce ($20 to $35 per ounce) and it stayed there until the 1960s or 70s when it was completely disconnected from gold.

So since the dollar no longer has any specific value, how could it be devalued or revalued? Value is not absolute, it has to be compared to something.

Perhaps someone know something I don't? About this. Lots of people know lots of things I don't know.

John Henry; 9/11/19, 11:07 AM
M Jordan said...: I dwell in Ecclesiastes 3: to everything there is a season. There is a season for Adam Smith and a season for John Maynard Keynes. There is a season for high interest and one for low interest. There is a season for a Trump-like smasher and a season for, oh, I don’t know ... Eisenhower? We are in the Trump season. When he leaves office it will be over. Let us take full advantage of it now.; 9/11/19, 11:11 AM
John henry said...: M Jordan

There is never a season for JM Keynes.

Keynes was famous for his quote "In the long term we are all dead". True about himself, he was gay and childless. Not true for most of humankind whole live on through their children, grandchildren, great-grandchildren and so on.

Had he been asked by the global whatsit folks "what kind of a world are we leaving for our children?" I suspect that his answer would have been the same as it was for economics:

"Fuck 'em. I'll be dead and it's not my problem."

Keynesian economics says that multi-trillion dollar national debts and bonds that don't have to be paid off for 100 years are not our problem. They are some future person's problem and we should let them worry about it.

Keynesian economics is always a horrible idea. Whenever someone says it is not, we need to trot out the hoary old cliche "Won't somebody please think about the children?"

John Henry; 9/11/19, 11:26 AM
mockturtle said...: I knew the day would come when, not only no interest on savings but we will have to pay our banks to keep our money for us. Maybe I'll start loaning to the Chinese...; 9/11/19, 11:27 AM
mockturtle said...: John Henry, I agree: Keynesian economics sucks.; 9/11/19, 11:29 AM
Michael K said...: I remember well the 1970s after the Left overthrew Nixon and went berserk.

I discussed it in my review of "After the Fall," by Nicole Gelinas.

The review is here.; 9/11/19, 11:30 AM
Wince said...: This comment has been removed by the author.; 9/11/19, 11:44 AM
Wince said...: This comment has been removed by the author.; 9/11/19, 11:45 AM
Wince said...: pacwest said...
Sounds like a lot of you here are making a an argument for devaluation of the dollar.

Darkisland said...
I've seen this a couple of other places and am confused. Just how would the govt devalue the dollar? Other than by inflation.

In this case indirectly, via interest rates.

National currencies tend to strengthen relative to one another in the country with higher interest rates, as international capital seeks higher returns. Currencies strengthen with those capital inflows as the demand for the currency increases with the demand for those currency-denominated investments. Conversely, currencies tend to weak ("devalue") when interest rates go lower.

That said, with other countries interest rates so low (indeed negative) and their economies sluggish, there is little chance international capital will flow significantly away from the US hurting the dollar even if US interest rates go lower.

Trump is maximizing the present US advantage against China and our allied competitors.

America First was his slogan, I believe.; 9/11/19, 11:48 AM
Yancey Ward said...: "I should be glad the bank isn't charging me anything for holding my money for me."

But they are, you just don't see it on a statement.; 9/11/19, 11:49 AM
Douglas B. Levene said...: Why does President Trump hate retirees and savers?; 9/11/19, 12:05 PM
n.n said...: Reducing the lending rate increases (i.e. democratize) the market to optimize determining and setting lending rates to consumers, which should, in theory, reduce the opportunity for gross misalignments caused by central/single, expert schemes.; 9/11/19, 12:14 PM
cubanbob said...: Wince is right. Trump's noise is first and foremost is to lower the dollar. The Euro is down, the RMB is down and Trump is trying to get the dollar back down to promote exports and reduce imports. Of course China and Europe are doing exactly the same.

Negative interest punishes savers but it does goose up the stock market. Trump's idea of refinancing the national debt with very long term debt is brilliant provided the Treasury can find enough buyers for the new issues. Government bonds are callable so in theory the government could call them all back but would investors continue to buy them if such a mass call backs occur? Then again, all we have to do is look safer than the others, at least in the eyes of foreigners. Brexit and the EU's high handedness is starting to spook the Euro.

So with negative rates borrowing costs for businesses that need to borrow will go down. Bond rates for munis will go down ( Chicago is secretly praying for Trump to succeed). Mortgage rates go down and home and commercial property prices go up. Insurance premiums go up. Joe Sixpack loses money by having cash so he puts more into his 401K because he has nowhere else to go and the stock market goes up.

By the way Once, now that you have ragged on trump's excessive spending, tell us how the Democrats proposed spending of at least 10X Trump's is not excessive. They are going to need zero rates to be able to even begin to think about such total war wartime spending.; 9/11/19, 12:38 PM
pacwest said...: "I've seen this a couple of other places and am confused. Just how would the govt devalue the dollar? Other than by inflation."

Wince pointed out one way. Lower interest rates. Hard to do when foreign rates are near zero. Another is to sell dollars and buy foreign currency. That is how China does most of their manipulation. I'm not sure if you could target a single currency (yaun) with this method. Other means exist. Not as easy with a floating rate vs a modified fixed rate like China has. Being the world's currency reserve is a mixed bag in this aspect. When we were on the gold standard a simple Presidential decree would have sufficed.

Lots of advantages, disadvantages, and unintended consequences though. Complex stuff above my pay grade. Any macroeconomists here?; 9/11/19, 12:52 PM
Robert Cook said...: "Instead of feeling bad that my money in the bank is making next to no interest, I should be glad the bank isn't charging me anything for holding my money for me."

No. You (and all of us) should feel outraged our money in the bank is making next to no interest, as, with inflation, our money is losing value over time sitting in banks who are making money off of our money.; 9/11/19, 1:37 PM
Robert Cook said...: "Presidents don't spend money. The House of Representatives does."

Oh, no? Who is taking money from the military (good!) to spend on the wall (bad!)?; 9/11/19, 1:41 PM
Bruce Hayden said...: Once written, twice... said...
“With his tax cuts and supporting exploding federal spending Trump has dangerously ginned up the economy.”

He apparently likes the high unemployment of the eight year Obama Recession. Presumably because he had a decent job, when so many didn’t. Typical progressive.

“What a shame when you are so counting on a recession to get Trump.”

They don’t have a choice. Their Russian collusion hoax is dead, having been exposed as having been ginned up by the Clinton campaign, the Obama Administration, and sympathetic top level bureaucrats in the DoJ, FBI, and CIA. Calling everyone they don’t like White Supremists seems to be crashing too, given last nights minority vote tallies. So, if the Dems don’t get their recession by 11/2020, they will be going into the election promising massive layoffs with their Green New Deal, running against Trump and the Republicans touting how much better they managed the. economy than Obama did (arguably a really low bar, given the Dems’ very vocal espousal of long discredited Keynesian Economics). Without their hoped for recession, they are going to have to explain why we should elect the to beggar the country to pretend to fight their fictitious Catastrophic Anthropogenic Global Warming/Climate Change/etc. Hard sell to make to most people who haven’t drunk the Kool-Aid.; 9/11/19, 1:47 PM
Bruce Hayden said...: One problem with deflation is that wages are sticky on the downside. This means that it is easier to raise them than cut them. But cutting them necessary to prevent misallocation of resources. When you have a bit of inflation, this can be done by just not giving those whose economic importance has declined smaller wage increases than everyone else.; 9/11/19, 1:53 PM
n.n said...: if the Dems don’t get their recession by 11/2020, they will be going into the election promising massive layoffs with their Green New Deal

They hope for another central/single, expert scheme that will force a progressive misalignment that justified the New Deal, and will today justify the Green New Deal.; 9/11/19, 2:05 PM
Robert Cook said...: "He apparently likes the high unemployment of the eight year Obama Recession."

Actually, it was the recession caused by the Financial Crisis that occurred in the last year of Bush's administration. Obama came into office with the collapse plopped into his lap.

Obama could have chosen to help homeowners who ended up losing their homes, but he chose to help the bankers and financiers. He was Bush II.; 9/11/19, 2:21 PM
Earnest Prole said...: If it were Obama running up such obscene deficits in a time of peace and prosperity you'd properly call it immoral and reckless.; 9/11/19, 2:24 PM
JackWayne said...: Fine. It’s reckless and immoral. Calvin Coolidge was the last moral President. I reckon you agree with that.; 9/11/19, 4:36 PM
Rusty said...: Robert. He's the Commander In Chief. He can do that shit once the money has been allocated to the military.; 9/11/19, 4:37 PM
Birkel said...: Earnest Prole ignores the YoY increases in the debt under Obama.
IOW, Obama borrowed more each year than has Trump.

But let's let Xim pretend otherwise.; 9/11/19, 5:57 PM
narciso said...: except the bubble was created by government policy, which was bipartisan, forcing the banks to lend to those who could not afford the mortgages, both Cisneros and Martinez pushed on that, Obama started the ball rolling forcing citigroup through one of these Alinsky protests,; 9/11/19, 6:01 PM
mockturtle said...: A booming economy and a skyrocketing national debt are--or should be--mutually exclusive.; 9/11/19, 6:06 PM
Jeff said...: @Bruce Hayden,
I said that (among other things) at 8:46 am.; 9/11/19, 6:39 PM
pacwest said...: "Obama started the ball rolling forcing citigroup through one of these Alinsky protests,"

Yes, and I love how guys like Cook never mention the fact that the crisis Obama inherited was the fault of his own party.; 9/11/19, 6:49 PM
Earnest Prole said...: Earnest Prole ignores the YoY increases in the debt under Obama.

I'm doing precisely the opposite. The debt increases were immoral and reckless under Obama. That doesn't magically change when the President has an R next to his name.; 9/11/19, 7:37 PM
Leland said...: I don't agree with Trump on this, but its not like the Democrats are pushing for higher interest rates. This might even be him testing the kneejerk reaction of the left to take an opposite position from his. This doesn't move the needle for me.; 9/11/19, 8:24 PM
Birkel said...: Yeah, Earnest Prole.
I remember you being all upset at Obama's spending. /sarc
And that was bigger.

But now you play at caring.
The current borrowing is lower in nominal dollars and as a percentage of GDP.

Your tired play acting is transparent.; 9/11/19, 9:26 PM
Earnest Prole said...: But now you play at caring.

In times of peace and prosperity you put your house in order. Ask your mom about it.; 9/11/19, 10:50 PM
Bruce Hayden said...: “”Actually, it was the recession caused by the Financial Crisis that occurred in the last year of Bush's administration. Obama came into office with the collapse plopped into his lap.”

“Obama could have chosen to help homeowners who ended up losing their homes, but he chose to help the bankers and financiers. He was Bush II.”

Why are you surprised? Goldman Sachs was his hiring hall for financial jobs in his Administration.

Of course, you also ignore that it was the weaponization of the CRA under Clinton, and then stuffing Freddie and Fannie with his people before he left that was really at the center of the housing bubble, then bust. They were the ones pushing and buying the “subprime” (I.e. the borrowers didn’t come close to qualifying) loans. Moreover, Bush (43) attempted to rein in the lending throughout his second term, and was vehemently opposed by Congressional Democrats, led by Rep Barney Franks.

I any case, the question is never if there is going to be an economic downturn or recession, but when. We were due a recession at that point. If the Dems’ housing bubble hadn’t burst, it still would have happened, but maybe not for a short time longer. And when Obama came into office, someone with no economic training nor financial experience, he and the Congressional Dems did almost everything wrong that they could. A recession that probably shouldn’t have lasted for more than a year or two, lasted Obama’s entire eight years. Of course, if he and the Congressional Dems hadn’t screwed up so badly managing the economy, so the recession was a lot shorter that the 8+ years that it ended up lasting, Trump wouldn’t have inherited an economy ready finally to take off,once proper policies were instituted.

So here are several of the major Obama/Reid/Pelosi screwups that turned a year or two recession into the second longest downturn on record.
- Stimulus Bill - almost a trillion dollars a year of wasteful spending. Keynesian stimulus doesn’t work, except maybe for a very short time in a severe liquidity trap, which we weren’t close to being in. The Keynesian multiplier was what The Dems we’re bidding up, with Pelosi claiming at one point a 4-5 x multiplier. Nope. Best case is maybe .9; Typically closer to maybe .8. - at precisely the wrong point in the economic cycle.
- One of the things that drove down the Keynesian multiplier was all the money sent to states and cities to bail out their pension plans.
- Obamacare
- Medicaid expansion
- Easing of SS Disability requirements (increasing Medicare costs)
- Bank bailouts
- GM and Chrysler union pension bailouts
- significant increase in regulations
- Banning of fracking, shut down much of the timber industry that thinned the National Forests (aggravating our western fire problems we have seen the last several years)

I am sure I missed some.

If I were to guess, I expect that the biggest single drag on economic recovery instituted by Obama and the Dems was the almost $Trillion$ a year in slush fund payments to all of their families and cronies in their Porkulous stimulus bill, kept open through funding the government through continuing resolutions throughout the rest of Obama’s two terms. They saw maybe a $6 trillion dollar piggy bank that they could raid over Obama’s eight years in office, and did. While the country was languishing in the eight years of the Obama Recession, cronies and families of powerful Dems made off with $billions$.
-; 9/12/19, 1:09 AM
Jeff said...: @Bruce Hayden,

Actually, the record on Keynesian stimulus is even worse than you say. In nearly thirty years working as a professional econometrician at the Fed, I never saw a single bit of evidence that deficit spending has any positive effects at all. I think your 0.8 or 0.9 multiplier is way too generous. I don't think a properly-done study on US data can reject the null hypothesis that the multiplier is zero.; 9/12/19, 6:58 AM