{"id":15360,"date":"2015-12-17T08:28:16","date_gmt":"2015-12-17T13:28:16","guid":{"rendered":"http:\/\/olduvai.ca\/?p=15360"},"modified":"2015-12-17T08:28:16","modified_gmt":"2015-12-17T13:28:16","slug":"why-the-fed-is-wrong-about-interest-rates","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=15360","title":{"rendered":"Why the Fed Is WRONG About Interest Rates"},"content":{"rendered":"<h3 class=\"entry-title\"><a href=\"http:\/\/www.washingtonsblog.com\/2015\/12\/fed-wrong-interest-rates.html\" target=\"_blank\">Why the Fed Is WRONG About Interest Rates<\/a><\/h3>\n<div class=\"entry-meta\">Richard Werner \u2013 an economics professor and the creator of quantitative easing \u2013 says that it\u2019s a myth that interest rates drive the level of economic activity. The data shows that the opposite is true:\u00a0<a href=\"http:\/\/www.washingtonsblog.com\/2015\/03\/qe-inventor-easy-create-full-blown-recovery-central-banks-chose-make-banksters-rich-instead-helping-main-street.html\">rates\u00a0<em>lag<\/em>the economy<\/a>.<\/div>\n<div class=\"entry-content\">\n<p>Economics prof Steve Keen \u2013 who called the Great Recession before it happened \u2013 points out today in Forbes that the\u00a0<a href=\"http:\/\/www.forbes.com\/sites\/stevekeen\/2015\/12\/16\/the-fed-by-the-numbers-and-why-they-are-wrong\/\">Fed\u2019s rate dashboard is missing crucial instrumentation<\/a>:<\/p>\n<blockquote><p>The Fed will probably hike rates 2 to 4 more times\u2014maybe even get the rate back to 1 per cent\u2014and then suddenly find that the economy \u201cunexpectedly\u201d takes a turn for the worse, and be forced to start cutting rates again.<\/p>\n<p>This is because there are at least two more numbers that need to be factored in to get an adequate handle on the economy: 142 and 6\u2014the level and the rate of change of private debt. Several other numbers matter too\u2014the current account and the government deficit for starters\u2014but private debt is the most significant omitted variable in The Fed\u2019s toy model of the economy. These two numbers (shown in Figure 2) explain why the US economy is growing now, and also why it won\u2019t keep growing for long\u2014especially if The Fed embarks on a period of rate hiking.<\/p><\/blockquote>\n<p><span id=\"more-52592\"><\/span><br \/>\nFigure 2: The two key numbers The Fed is ignoring<\/p>\n<p><img decoding=\"async\" class=\"size-full wp-image-509 aligncenter\" src=\"http:\/\/blogs-images.forbes.com\/stevekeen\/files\/2015\/12\/image0041.png\" alt=\"image004\" \/><\/p>\n<blockquote><p>[T]he dilemma this poses for The Fed\u2014<strong>a dilemma about which it is blissfully unaware<\/strong>\u2014is that a sustained growth rate of credit faster than GDP is needed to generate the magic numbers on which it is placing its current wager in favor of higher interest rates.<\/p>\n<p>The Fed, along with all mainstream economists, dismisses this argument on the basis that the level of private debt doesn\u2019t matter to the macroeconomy: for every debtor who can spend less because of higher rates, there is a saver who can spend more, so the two effects cancel out.<\/p><\/blockquote>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Why the Fed Is WRONG About Interest Rates Richard Werner \u2013 an economics professor and the creator of quantitative easing \u2013 says that it\u2019s a myth that interest rates drive the level of economic activity. The data shows that the opposite is true:\u00a0rates\u00a0lagthe economy. Economics prof Steve Keen \u2013 who called the Great Recession before [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[303,305,384,431,662,3953,750,5510],"class_list":["post-15360","post","type-post","status-publish","format-standard","hentry","category-economics","tag-fed","tag-federal-reserve","tag-great-recession","tag-interest-rates","tag-quantitative-easing","tag-richard-werner","tag-steve-keen","tag-washingtons-blog"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/15360","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15360"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/15360\/revisions"}],"predecessor-version":[{"id":15361,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/15360\/revisions\/15361"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15360"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15360"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15360"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}