Like most bright spots who write about “policy” you do it from a point of view of pure central planning, not understanding how markets work. You look only at how lower rates affect consumer demand and financial asset prices, completely ignoring the supply side and the fact that persistently declining rates over decades creates DEFLATION in manufactured goods.
That may seem desirable while it’s happening but leads to disaster.
Every time rates tick down a business is incentivized to finance another round of production. If they don’t their competition will, gaining market share. When supply is added as the result of suppression of rates and not natural demand, it drives down prices and compresses profit margins over time.
Yes, prices have risen (2% inflation “mandate” of the Fed) due to government compliance measures, taxes and other fees and regulations. So-called “useless ingredients” adding costs to production. The cost of production of milk has decreased 90% in 40 years, but prices are up because of these useless ingredients.
So when cost inputs finally rise above profit margin because of higher rates or more useless ingredients, marginal businesses can’t finance more production and begin liquidating. Less supply, higher prices. The public begins to question the future availability of products and they replace the bank balance with the pantry balance because there’s zero incentive to keep money in a bank with rates so low anyway.
Rates remaining below the time preference of the saver/consumer and profit margin of the marginal producer leads to more demand and less supply. The bigger players in the commodity markets have clearly already recognized a tipping point given the persistent backwardation in major commodities like
-corn
-coal
-natural gas
-soybeans
-lean hogs
-oil
-copper
-cotton
Persistent backwardation in these commodities at the same time means it is not a supply chain issue. Market actors are preferring to take physical delivery now instead of booking a guaranteed profit taking delivery in the future. They are essentially rejecting the US dollar, just like the saver/consumer who replaces the bank balance with the pantry balance.
Sociopath central planners can manipulate for a while but the market always has the final say. Always.
This is basic economics from a guy named Carl Menger. But I’m sure you’ve never heard of him.
Like most bright spots who write about “policy” you do it from a point of view of pure central planning, not understanding how markets work. You look only at how lower rates affect consumer demand and financial asset prices, completely ignoring the supply side and the fact that persistently declining rates over decades creates DEFLATION in manufactured goods.
That may seem desirable while it’s happening but leads to disaster.
Every time rates tick down a business is incentivized to finance another round of production. If they don’t their competition will, gaining market share. When supply is added as the result of suppression of rates and not natural demand, it drives down prices and compresses profit margins over time.
Yes, prices have risen (2% inflation “mandate” of the Fed) due to government compliance measures, taxes and other fees and regulations. So-called “useless ingredients” adding costs to production. The cost of production of milk has decreased 90% in 40 years, but prices are up because of these useless ingredients.
So when cost inputs finally rise above profit margin because of higher rates or more useless ingredients, marginal businesses can’t finance more production and begin liquidating. Less supply, higher prices. The public begins to question the future availability of products and they replace the bank balance with the pantry balance because there’s zero incentive to keep money in a bank with rates so low anyway.
Rates remaining below the time preference of the saver/consumer and profit margin of the marginal producer leads to more demand and less supply. The bigger players in the commodity markets have clearly already recognized a tipping point given the persistent backwardation in major commodities like
-corn
-coal
-natural gas
-soybeans
-lean hogs
-oil
-copper
-cotton
Persistent backwardation in these commodities at the same time means it is not a supply chain issue. Market actors are preferring to take physical delivery now instead of booking a guaranteed profit taking delivery in the future. They are essentially rejecting the US dollar, just like the saver/consumer who replaces the bank balance with the pantry balance.
Sociopath central planners can manipulate for a while but the market always has the final say. Always.
This is basic economics from a guy named Carl Menger. But I’m sure you’ve never heard of him.