{"id":67698,"date":"2024-04-27T18:53:43","date_gmt":"2024-04-27T23:53:43","guid":{"rendered":"https:\/\/olduvai.ca\/?p=67698"},"modified":"2024-04-27T18:53:43","modified_gmt":"2024-04-27T23:53:43","slug":"central-banks-are-wrong-about-rate-cuts","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=67698","title":{"rendered":"Central Banks Are Wrong about Rate Cuts"},"content":{"rendered":"

Central Banks Are Wrong about Rate Cuts<\/a><\/h3>\n
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When we talk about monetary policy,\u00a0people do not understand the importance of interest rates reflecting the reality of inflation and risk. Interest rates are the price of risk and manipulating them down leads to bubbles that end in financial crises, while imposing too high rates can penalize the economy. Ideally, interest rates would flow freely and there would be no central bank to fix them.<\/p>\n

A price signal as important as interest rates or the amount of money would prevent the creation of bubbles and, above all, the disproportionate accumulation of risk. The risk of fixing rates too high does not exist when central banks impose reference rates, as they will always make it easier for state borrowing\u2014artificial currency creation\u2014in the most convenient\u2014what they call \u201cno distortions\u201d\u2014and cheap way.<\/p>\n

Many analysts say that central banks do not impose interest rates; they only reflect what the market demands. Surprisingly, if that were the case, we wouldn\u2019t have financial traders stuck to screens on a Thursday waiting to decipher what the rate decision is going to be. Moreover, if the central bank only responds to market demand, it is a good reason to let interest rates float freely.<\/p>\n

Citizens perceive that raising interest rates with high inflation is harmful; however, they do not seem to understand that what was really destructive was having negative real and nominal interest rates. That\u2019s what encourages economic agents to take far more risks than we can take and to disguise excess debt with a false sense of security. At the same time, it is surprising that citizens praise low rates but then complain that home prices and risky assets rise too fast.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n<\/section>\n","protected":false},"excerpt":{"rendered":"

Central Banks Are Wrong about Rate Cuts When we talk about monetary policy,\u00a0people do not understand the importance of interest rates reflecting the reality of inflation and risk. Interest rates are the price of risk and manipulating them down leads to bubbles that end in financial crises, while imposing too high rates can penalize the […]<\/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":[16957,431,34414,534,538,13351],"class_list":["post-67698","post","type-post","status-publish","format-standard","hentry","category-economics","tag-daniel-lacalle","tag-interest-rates","tag-mises-wire","tag-monetary-policy","tag-money-printing","tag-price-inflation"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/67698","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=67698"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/67698\/revisions"}],"predecessor-version":[{"id":67699,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/67698\/revisions\/67699"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=67698"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=67698"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=67698"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}