Reserve Bank of Australia raises interest rate by 0.25% (1 Viewer)

[absorber]

shodan I think that this whole idea of stimulus is stupid in the first place. btw, you don't need to use sentences like "in case you still don't get it", that's pretty condescending since I'm only asking you to confirm what I think you're saying - so that way I don't accuse you of something you didn't say.

1. If it is so easy to make the 'economy go faster' by dropping the interest rate, why doesn't the RBA just do it all the time?

2. How do you respond to the criticism that dropping the interest rates (below the level that would be set by the market if it were not being price controlled) will only create more malinvestment? The problem is not one of aggregates (as in, aggregate demand or capital), it is about the structure and allocation of resources.

Because if they did that they'd be in the same situation as America and Europe now; they can't get themselves out of recession because interest rates there are too low

 

[S.H.O.D.A.N.]

shodan I think that this whole idea of stimulus is stupid in the first place. btw, you don't need to use sentences like "in case you still don't get it", that's pretty condescending since I'm only asking you to confirm what I think you're saying - so that way I don't accuse you of something you didn't say.

Grin and bear it, mate. I'm not going to be terribly polite to you when you're implying I'm naive and incorrect:

So when you say interest rate at a strong emergency stimulus level, can you expand on that? I'd just like to clear up why you think that.

1. If it is so easy to make the 'economy go faster' by dropping the interest rate, why doesn't the RBA just do it all the time?

1) Inflation becomes a big risk.
2) It causes bubbles.

2. How do you respond to the criticism that dropping the interest rates (below the level that would be set by the market if it were not being price controlled) will only create more malinvestment? The problem is not one of aggregates (as in, aggregate demand or capital), it is about the structure and allocation of resources.

Frankly I thought the interest rate was dropped too low. I don't mind, though, since it's being raised rapidly. Stevens has thought it out thoroughly, even if his moves are eccentric. Before this, he was being abused because the interest rate was so high. Now people recognise that move as shrewd foresight.

And what if the Austrian school is not correct, volition? People were strong adherents to it after WW2 and during the Cold War, but in the 70's it had a string of successive failures that suggested neither the Austrian school nor Keynesianism are the answer - a pragmatic selection of the theory that's right for the occasion is necessary instead.

What mind of mechanism would you suggest for 'floating' the interest rate, similar to the way the dollar is floated?

Is it even necessary? Australia has an excellent regulatory framework - why should we replace it?

 

[jennyfromdabloc]

1. If it is so easy to make the 'economy go faster' by dropping the interest rate, why doesn't the RBA just do it all the time?

1) Inflation becomes a big risk.
2) It causes bubbles.

Sigh.

 

[S.H.O.D.A.N.]

Sigh.

Oh wonderful, wonderful! Why don't you explain to us all how having a sustained artificially low interest rate does in fact, beyond all comprehension, lower inflation, increase the worth of the dollar, and encourage people to save and pay off debt?

 

[jennyfromdabloc]

Oh wonderful, wonderful! Why don't you explain to us all how having a sustained artificially low interest rate does in fact, beyond all comprehension, lower inflation, increase the worth of the dollar, and encourage people to save and pay off debt?

No you misunderstand me friend.

I was expressing exasperation that you are fully aware of how destructive an artificially low interest rate is, yet you supported the RBA decision to make it artificially low.

Way to doublethink.

 

[volition]

The objection is simple: Given that interest rates are artificially and unsustainably low, why would any businessman make his profitability calculations based on the assumption that the low interest rates will prevail indefinitely? No, what would happen is that entrepreneurs would realize that interest rates are only temporarily low, and take this into account.

I believe the Austrian answer to this is that even though they know it is artificially low, they still don't know exactly what it 'should be'. To give you a (somewhat crude) analogy, the fact that Billy knows he is drunk, does not mean that he knows how to 'compensate' for it and still drive correctly. So this government interference makes it impossible to properly do the long term calculations. They end up tending to take more risk than they otherwise would have. Here's a good little summary of the moral hazard that gets introduced by the government as well.

1) Inflation becomes a big risk.
2) It causes bubbles.

It amazes me that you are able to understand that artificially having low interest rates causes bubbles, and yet you still support the policy. I think jennyfromdabloc is entirely justified in calling this doublethink.

directed to shodan and murphyad:
Anyway guys, I'm not suggesting that Austrian economics is the perfect be all and end all, but what I am suggesting is that it is better than the alternatives. Austrian economists have been railing against central banking and price controls for ages.

Look at people like Peter Schiff who were successful in predicting the crash, despite being laughed at. Or people like Ron Paul who have been railing against the Fed for about 30 years. Mises and Hayek spoke about the coming crash before the great depression. Murray Rothbard spoke about how, if a person were really crazy/evil enough, they could prolong a recession by taking certain actions - and wrote this in a book back in 1963. Amazingly enough, it matches up quite well with Obama's economic policy.

Now compare the Austrians to the more 'mainstream' Bernanke. Why are we still listening to this guy?

 

[jennyfromdabloc]

I believe the Austrian answer to this is that even though they know it is artificially low, they still don't know exactly what it 'should be'. To give you a (somewhat crude) analogy, the fact that Billy knows he is drunk, does not mean that he knows how to 'compensate' for it and still drive correctly. So this government interference makes it impossible to properly do the long term calculations.

Very true. Although analogies are not even needed. As you said, the free market interest rate is determined by a matrix of millions of interactions. No matter how brilliant a businessman or forecaster may be, it is simply impossible to accurately estimate how millions of people would behave in the absence of government intervention. Central banks have been in existence for so long now that there is not even any remotely relevant historical data about how people would behave in the absence of central bank intervention to base such an analysis on.

Look at people like Peter Schiff who were successful in predicting the crash, despite being laughed at.

murphyad: Austrian economists like Peter Schiff are in fact reacting to the central bank's policy and are making huge profits from doing so. Schiff has made a fortune for himself and his clients by shorting the US dollar and buying commodities, particularly gold.

His predictions continue to be vindicated as right now gold is making new highs and the US dollar is approaching new lows against most major currencies.

 

[Ayatollah]

murphyad: Austrian economists like Peter Schiff are in fact reacting to the central bank's policy and are making huge profits from doing so. Schiff has made a fortune for himself and his clients by shorting the US dollar and buying commodities, particularly gold.

LOL peter schiff is not an economist (he's not even 'Austrain') you blank-minded redneck. He's a scheming money grabber trying to lure low-brow rightwingers into his ponzi schemes. Do you know 70% of his clients portfolios have been reduced to basically nothing? nauseating. Anyone can be a permanent 'bear', and then say 'i told you so' when a bear market inevitabley arrives, but did he call the subsequent rally? no. He's exactly the same as the permanent 'bulls', who are always opimistic, and when the market inevitabley goes up they claim to be 'prophets'.

Your understanding of how the RBA (and all central Banks) set interest rates is rottenly serville, just hilarious.

 

[Sultun]

LOL peter schiff is not an economist (he's not even 'Austrain') you blank-minded redneck. He's a scheming money grabber trying to lure low-brow rightwingers into his ponzi schemes. Do you know 70% of his clients portfolios have been reduced to basically nothing? nauseating. Anyone can be a permanent 'bear', and then say 'i told you so' when a bear market inevitabley arrives, but did he call the subsequent rally? no. He's exactly the same as the permanent 'bulls', who are always opimistic, and when the market inevitabley goes up they claim to be 'prophets'.

Your understanding of how the RBA (and all central Banks) set interest rates is rottenly serville, just hilarious.

rolf. Shciff predicted the crash perfectly. Austrian economics (under our leader Ron Paul!) is the Way. WE need to END THE FED. You are just afraid of change and afraid of freedom and you attack us because we are Free and We are rich. END THE FED. END THE FED.

 

[gnrlies]

I love it how the free market trolls refer to Austrian economics as though they have gone through a life long journey of discover through the passages of all that economics has to offer and discovered that Austrian economics is the way to go. More often than not it is just a second or third year law student who has read the Road to Serfdom and refers to the various 'schools of thought' in the same way as a creationist tries to mount a scientific claim against evolution.

 

[volition]

I love it how the free market trolls refer to Austrian economics as though they have gone through a life long journey of discover through the passages of all that economics has to offer and discovered that Austrian economics is the way to go. More often than not it is just a second or third year law student who has read the Road to Serfdom and refers to the various 'schools of thought' in the same way as a creationist tries to mount a scientific claim against evolution.

Whether or not free market supporters are 2nd/3rd year law students is irrelevant. Try responding to the argument next time, you might actually give yourself a chance that way.

 

[gnrlies]

Whether or not free market supporters are 2nd/3rd year law students is irrelevant. Try responding to the argument next time, you might actually give yourself a chance that way.

I did not seek to engage in the debate / argument. I did not even read the bulk of the posts contained within this thread. As such I have no idea whether I would agree or disagree with the sentiment of what is being said.

But what I do know, is that as soon as someone mounts an argument based on Austrian economics; they are completely full of shit. Its one thing to actually be an economist who has spent a considerable amount of time forming your own opinions and asking questions about the world we live in, but it is something completely different to be a twenty something year old barely out of high school preaching the word of Hayek. The difference of course is that the former remains intellectually inquisitive, while the other is indoctrinated and ideological.

I'm not taking a stab at a particular side of politics as the same can be said for those of any political persuasion, but I am taking a swipe at a particular type of person (a type of person which I myself may have been like).

 

[jennyfromdabloc]

I did not seek to engage in the debate / argument. I did not even read the bulk of the posts contained within this thread. As such I have no idea whether I would agree or disagree with the sentiment of what is being said.

But what I do know, is that as soon as someone mounts an argument based on Austrian economics; they are completely full of shit. Its one thing to actually be an economist who has spent a considerable amount of time forming your own opinions and asking questions about the world we live in, but it is something completely different to be a twenty something year old barely out of high school preaching the word of Hayek. The difference of course is that the former remains intellectually inquisitive, while the other is indoctrinated and ideological.

I'm not taking a stab at a particular side of politics as the same can be said for those of any political persuasion, but I am taking a swipe at a particular type of person (a type of person which I myself may have been like).

So you accuse Austrian economists of being indoctrinated and ideological, yet you make the sweeping assumption that anyone who mounts an argument based on Austrian economics is automatically full of shit. You have provided no evidence or explanation as to why you think Austrian economics is wrong, just a bunch of personal attacks on Austrian economists based on assumptions you just made up.

Ironic that you call Austrian economists indoctrinated when Neoclassical, Keynesian and Marxist economic theory constitutes almost the entire economics curriculum of high schools and universities, while Austrian economics is almost entirely ignored by these institutions and not treated seriously if it is mentioned. You would in fact find that most Austrian economists have discovered this alternative through independent research which they have undertaken because of a dissatisfaction with mainstream economic theory. So in fact many Austrian economists have done exactly what you advocate and "spent a considerable amount of time forming your own opinions and asking questions about the world we live in." Its just they have formed different opinions to you.

You claim to be an economist who is skilled enough to be worth paying for your tutorings services, yet in an interesting discussion about interest rates, all you have managed to contribute is long winded ad hominem.

 

[murphyad]

I believe the Austrian answer to this is that even though they know it is artificially low, they still don't know exactly what it 'should be'. To give you a (somewhat crude) analogy, the fact that Billy knows he is drunk, does not mean that he knows how to 'compensate' for it and still drive correctly. So this government interference makes it impossible to properly do the long term calculations.

While again this is straining the boundaries of my economic knowledge (which is admittedly very limited), it doesn't follow that the inability to scientifically predict interest rates would lead to malinvestment. It seems to me that the Austrian theory implies an irrationality on the part of the small businessman that occurs solely from government intervention. However, if the government is removed, this irrationality magically vanishes, without justification. I fail to see how, in the absence of government, a businessperson would be able to exactly determine the market interest rate; the 'higgling of the market' is hardly a scientific process in this regard. In regards to the ability to predict interest rates in an interventionist economy, even if simple businessmen just use current market interest rates in a completely robotic way, why doesn't arbitrage by the credit-market insiders make long-term interest rates a reasonable prediction of actual policies?
Whilst I'm aware of what moral hazard is, I'm not sure how exactly it pertains to the role of interest rates in malinvestment and depressions.

As an aside, I found this article relating to the consequences of so-called malinvestment that seems to contest the mal prefix as well as the resulting conclusions drawn by Austrian theorists:

http://mises.org/journals/rae/pdf/RAE2_1_4.pdf

 

[ComingUpForAir]

While again this is straining the boundaries of my economic knowledge (which is admittedly very limited), it doesn't follow that the inability to scientifically predict interest rates would lead to malinvestment. It seems to me that the Austrian theory implies an irrationality on the part of the small businessman that occurs solely from government intervention.
However, if the government is removed, this irrationality magically vanishes, without justification. I fail to see how, in the absence of government, a businessperson would be able to exactly determine the market interest rate; the 'higgling of the market' is hardly a scientific process in this regard.

yes u have no understanding of economics...
I dont like your use of the word 'irrational', it implies the firms, and more importantly, individuals within such firms, dont act in regards to their objective, which they in fact do. If firms know that they are 'too big to fail', there appietite for risk will increase (especially when you combined this with the fact the Central bank is crediting their reserves to keep the overnight cash rate low, which is what Greenspan allowed after the 2001 reccesion).

Hence during the bubble financial firms leverage themselves to a far greater extent than they otherwise would, big 'off-the-books' ponzi schemes manifest themselves, and individuals employees get rich (their objective). When the 'bubble bursts', their ballance sheets (or in fact those assets off their balance sheets) implode, the firm is practically insolvent, no one wants to lend to each other (they know other banks are in similar positions to themselves), the centrtal bank 'bails them out' (quite rightly sighting contagion risk, and the negative externalities of 'frozen' credit) and firms bypass the consequences of their earlier actions, they avoid bankrupcy and keep their wellpaying jobs (objective). This is exactly what happend (aside from Lehman brothers, where the US-Fed made a bad mistake), and dont be so navie to think these top bankers didnt know what was up, i.e. their behaviour was thus precisely 'rational'.

In regards to the ability to predict interest rates in an interventionist economy, even if simple businessmen just use current market interest rates in a completely robotic way, why doesn't arbitrage by the credit-market insiders make long-term interest rates a reasonable prediction of actual policies?

The fuck are you talking about? what 'interest rate' rate are you talking about? what the hell does arbitrage have to do with making accurate predictions (as opposed to providing current future perceptions)? very confused stuff.

Whilst I'm aware of what moral hazard is, I'm not sure how exactly it pertains to the role of interest rates in malinvestment and depressions.

haha..good joke

 

[gnrlies]

So you accuse Austrian economists of being indoctrinated and ideological

No, I accused people who blindly follow Austrian economics as indoctrinated and ideological. The economist is aware of its limitations and is less preachy about the whole thing.

yet you make the sweeping assumption that anyone who mounts an argument based on Austrian economics is automatically full of shit.

Well the person who cannot articulate by themselves why they think the way they do and instead throws in the thoughts Austrian school in the same way as a christian refers to the bible is indeed full of shit. Same thing goes for a Marxist who does the same for Das Kapital, or a Keynesian with the general theory.

You have provided no evidence or explanation as to why you think Austrian economics is wrong, just a bunch of personal attacks on Austrian economists based on assumptions you just made up.

I have not attacked the Austrian school, or its economists. As I stated earlier, I have not sought to engage in the debate. I am only expressing my frustration at people who don't know two fifths of fuck all using Austrian economics to go on an anti-government rant that is driven by nothing more than ideology and indoctrination (from sources other than economics).

Ironic that you call Austrian economists indoctrinated when Neoclassical, Keynesian and Marxist economic theory constitutes almost the entire economics curriculum of high schools and universities, while Austrian economics is almost entirely ignored by these institutions and not treated seriously if it is mentioned.

Hah, here we go. Do we need another senate enquiry about a left wing conspiracy? High school economics largely omits any discussion on the various schools of thought within economics, and certainly nowhere in the syllabus does the HSC course prescribe marxist or keynesian teaching. It is a qualitative course that emphasizes the motivation behind government policy and this necessarily includes the countercyclical tendencies of governments, as well as the free market reforms of the last thirty years. At the university level students are exposed to the evolution of economic thought ranging from the classical economists right through to monetarism and modern DSGE approaches. To claim otherwise is a little bit of an exaggeration. Austrian economics as with marxism is not taught because they are not mainstream. However given any HET or contending perspectives course they will be discussed in their historical context. Claiming that it should be taught is like a christian claiming that creationism should be taught because it is an alternative to evolution (im sorry to keep picking on christians).

You would in fact find that most Austrian economists have discovered this alternative through independent research which they have undertaken because of a dissatisfaction with mainstream economic theory. So in fact many Austrian economists have done exactly what you advocate and "spent a considerable amount of time forming your own opinions and asking questions about the world we live in." Its just they have formed different opinions to you.

And most of them are dead.

You claim to be an economist who is skilled enough to be worth paying for your tutorings services, yet in an interesting discussion about interest rates, all you have managed to contribute is long winded ad hominem.

I think you have got your knickers in a twist over nothing. You seem to think that I am making an attack on your beloved Austrian economics. At no point did I ever seek to engage in that debate (as I have now said multiple times). My attack (if there was one) was necessarily personal (although not aimed at anyone specifically in this thread) as I was making the point that blind faith and ideological indoctrination make someone fulll of shit.

I am far from a skilled economist which is precisely why I know my limitations. Thats why I neither hold the view that Austrian economics is right and everything else is wrong (or vice versa). How can I possibly know all the answers when people who are are both more intelligent and dedicated to finding the answers are no closer to finding them. That is my problem with the whole 'austrian economics says this' approach to economics. It is completely void of thought, and seems to place faith in something that most people don't even understand. to re-iterate, I have the same bone with people who do the same for any other school of thought in any other discipline.

 

[tiggaman]

storm in a tea cup!

 

[jennyfromdabloc]

Gnriles: So at the end of the day, after all your ranting, you admit that just like any other economists, Austrian economists may or may not be indoctrinated, and may or may not be correct. Nice work.

In the time you spent typing out that shit you could have contributed something interesting to the discussion about interest rates.

 

[gnrlies]

Gnriles: So at the end of the day, after all your ranting, you admit that just like any other economists, Austrian economists may or may not be indoctrinated, and may or may not be correct. Nice work.

In the time you spent typing out that shit you could have contributed something interesting to the discussion about interest rates.

no at the end of the day I am saying that non-economists who refer to Austrian economics are indoctrinated and have no idea what they are talking about.

 

[jennyfromdabloc]

no at the end of the day I am saying that non-economists who refer to Austrian economics are indoctrinated and have no idea what they are talking about.

What a retarded assumption. Who do you define as an economist anyway?