PeakTrader.com

[administrator]

PeakTrader:

BC, I stated before: Lower interest rates and higher asset prices induce people to spend and borrow, and reduce saving, a lower cost of capital spurs production, refinancing at lower rates increases discretionary income, lower mortgage rates makes buying a home more affordable, 401(k)s and IRAs increase in value, etc. There are massive multiplier effects throughout the economy.

What concerns me is the continued L-shaped recovery, at best, after the severe recession. Fiscal policy “crowded-in” growth, through massive borrowing, and “crowded-out” future growth. Unfortunately, the result has been anemic growth.

If we had a U-shaped or V-shaped recovery instead, government spending (including on the unemployed) would fall and tax revenue would rise to shrink budget deficits dramatically.

There seems to be too many ineffective and counterproductive economic policies out of Washington. Basically, there’s one foot on the accelerator and the other foot on the brake causing an expensive “recovery.”

It seems, rather than bringing down the mountain of household debt through large tax cuts (to generate a self-sustaining consumption-employment cycle to shrink budget deficits), a mountain of government debt was added to the mountain of household debt. If you owe $5,000 on your car, a $5,000 tax cut would help you substantially. However, hiring a worker for $5,000, through borrowing, to pave the road won’t help you much.

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Spencer:

Really, lower and lower interest rates crowded out investments. Can you show me an a real life example of where higher rates lead to greater growth?

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PeakTrader:

There’s nothing in my statement that supports your response.

When there’s an actual recovery, or enough potential output is destroyed, interest rates will rise on the national debt, to preempt inflation, crowding-out future growth.

Moreover, lower interest rates induce demand and reduce saving, in the current period (somewhat similar to lower prices), to raise consumption = income – saving, through spending and borrowing, also crowding-out future growth.

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