• This is a political forum that is non-biased/non-partisan and treats every persons position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

Suggestion: Federal Funds Rate Should Be Decided by Auction

ReformCollege

Banned
DP Veteran
Joined
Jul 10, 2012
Messages
4,136
Reaction score
915
Gender
Male
Political Leaning
Slightly Conservative
What does anyone think of this? Instead of the Fed controlling interest rates and lending, by manipulating the Fed Funds rate to control interest rates, why not just let the market control it?

Lend a set amount of money every day/week/month whatever, and have it go to different banks by way of auction. Banks would "bid" how much interest they would pay on a particular "block" of Fed lending. If the economy is skyrocketing and banks are lending at a high clip, the interest rate would get pushed up by increased demand. If the economy is tanking, perhaps the Fed might end up lending at a negative interest rate if that is all the market is willing to pay.

Thoughts?
 

Fisher

DP Veteran
Joined
Sep 18, 2012
Messages
17,002
Reaction score
6,913
Gender
Male
Political Leaning
Very Liberal
What does anyone think of this? Instead of the Fed controlling interest rates and lending, by manipulating the Fed Funds rate to control interest rates, why not just let the market control it?

Lend a set amount of money every day/week/month whatever, and have it go to different banks by way of auction. Banks would "bid" how much interest they would pay on a particular "block" of Fed lending. If the economy is skyrocketing and banks are lending at a high clip, the interest rate would get pushed up by increased demand. If the economy is tanking, perhaps the Fed might end up lending at a negative interest rate if that is all the market is willing to pay.

Thoughts?
It would be a disaster akin to letting the market dictate gas prices resulting in wild fluctuations of interest rates.
 

Rod Knox

New member
Joined
Jul 19, 2013
Messages
49
Reaction score
11
Gender
Male
Political Leaning
Independent
I believe that's what they are "theoretically" doing. And when the banks are balking at borrowing money the Fed offers it to them at near ZERO interest and the banks buy federal debt with it and earn the market interest rate on it. The investment banks are the country's NUMBER ONE recipient of entitlements and by being the middle man Congress can deny that they have any involvement in dumping greenbacks to pump up the stock markets. But the game is rigged to do just that. And inflation will be the result.
 

specklebang

Discount Philosopher
DP Veteran
Joined
Jan 13, 2012
Messages
11,524
Reaction score
6,769
Location
Las Vegas
Gender
Undisclosed
Political Leaning
Other
I agree with you except for the very last part of your statement.

This whole rotating circus of money gives a fortune out to very, very few recipients. These people are accumulators, not consumers. If the "profits" of creating money and then chipping away percentages applied to more people, we would have tremendous inflation. But if you give a billionaire another 100M, they won't chase goods or services with it. If the wealth were spread around, we'd have devastating inflation because "normal" people would start buying things and drive up prices.


I believe that's what they are "theoretically" doing. And when the banks are balking at borrowing money the Fed offers it to them at near ZERO interest and the banks buy federal debt with it and earn the market interest rate on it. The investment banks are the country's NUMBER ONE recipient of entitlements and by being the middle man Congress can deny that they have any involvement in dumping greenbacks to pump up the stock markets. But the game is rigged to do just that. And inflation will be the result.
 

Fisher

DP Veteran
Joined
Sep 18, 2012
Messages
17,002
Reaction score
6,913
Gender
Male
Political Leaning
Very Liberal
I agree with you except for the very last part of your statement.

This whole rotating circus of money gives a fortune out to very, very few recipients. These people are accumulators, not consumers. If the "profits" of creating money and then chipping away percentages applied to more people, we would have tremendous inflation. But if you give a billionaire another 100M, they won't chase goods or services with it. If the wealth were spread around, we'd have devastating inflation because "normal" people would start buying things and drive up prices.

They are trying to put it in consumers' hands but just for mortgages to drive up demand in real estate and, if they are not careful, create another housing bubble. I live in po-dunk nowheresville and real estate has really taken a left-turn for the better this year. We are not quite back to 2008 volume, but it is definitely picking up.
 

Rod Knox

New member
Joined
Jul 19, 2013
Messages
49
Reaction score
11
Gender
Male
Political Leaning
Independent
The public is so easily panicked by any of several high profile "indicators," Dow and Nasdaq being among them. And both the legislative and executive branch wish to keep panic out of the picture so the continued pumping up of equities markets will continue with the hopes that crippling inflation will be avoided or blamed on the opposing party. It's just another shell game that WE always lose.
 

specklebang

Discount Philosopher
DP Veteran
Joined
Jan 13, 2012
Messages
11,524
Reaction score
6,769
Location
Las Vegas
Gender
Undisclosed
Political Leaning
Other
They are trying to put it in consumers' hands but just for mortgages to drive up demand in real estate and, if they are not careful, create another housing bubble. I live in po-dunk nowheresville and real estate has really taken a left-turn for the better this year. We are not quite back to 2008 volume, but it is definitely picking up.
Well, there's a long way to go before we hit anything near the 2005 bubble. Here's what's going on in Las Vegas Las Vegas Home Prices Surge in July - 8 News NOW but to give you a frame of reference, my personal residence was at about 85K in 2002 and hit $225K by 2005. I bought this in 2009 for $63K and the price dropped as low as $37K by 2011 and today, probably back to $63K. I don't see it getting much past $80K and certainly not the $225K of 2005.

I see most of this money going into the stock market as commissions are clipped as the money circles around from Ben to Bank and Bank to Ben. They pick off a few million here and there but they definitely don't get any going to Joe Average Consumer. As long as Joe doesn't get anything, we'll be safe from inflation.

I think. Maybe.
 

Fisher

DP Veteran
Joined
Sep 18, 2012
Messages
17,002
Reaction score
6,913
Gender
Male
Political Leaning
Very Liberal
Well, there's a long way to go before we hit anything near the 2005 bubble. Here's what's going on in Las Vegas Las Vegas Home Prices Surge in July - 8 News NOW but to give you a frame of reference, my personal residence was at about 85K in 2002 and hit $225K by 2005. I bought this in 2009 for $63K and the price dropped as low as $37K by 2011 and today, probably back to $63K. I don't see it getting much past $80K and certainly not the $225K of 2005.

I see most of this money going into the stock market as commissions are clipped as the money circles around from Ben to Bank and Bank to Ben. They pick off a few million here and there but they definitely don't get any going to Joe Average Consumer. As long as Joe doesn't get anything, we'll be safe from inflation.

I think. Maybe.
Vegas was inundated with foreclosures though--not anywhere near what most places got. Weren't most of the houses in vegas either in foreclosure or upside down at one point?
 

head of joaquin

Banned
DP Veteran
Joined
Oct 19, 2012
Messages
12,029
Reaction score
3,530
Gender
Male
Political Leaning
Progressive
The proposal would defeat the purpose of the Federal Reserve Act, which is to promote maximum employment, stable prices and moderate long-term rates. Treating the money supply as a commodity would result in wild swings in rates and prices, and the inability to do longterm business planning, increasing unemployment as employers hedge uncertainty by keeping labor costs down.

This is another example, like healthcare, which shows that markets are flawed in certain areas of the economy and do not produce the goals we want.
 

Goshin

The Hammer of Chaos
DP Veteran
Joined
Mar 16, 2009
Messages
45,508
Reaction score
50,072
Location
Dixie
Gender
Male
Political Leaning
Independent

specklebang

Discount Philosopher
DP Veteran
Joined
Jan 13, 2012
Messages
11,524
Reaction score
6,769
Location
Las Vegas
Gender
Undisclosed
Political Leaning
Other
Vegas was inundated with foreclosures though--not anywhere near what most places got. Weren't most of the houses in vegas either in foreclosure or upside down at one point?
Sure we were flooded in foreclosures. You sell houses for $225K to people who can't possibly afford them and that's the reward you get in return.

People who bought homes in 2004/2005 made really bad decisions. They couldn't build houses fast enough. These are people who didn't buy a house in 2001 or 2009. They bought into the bubble assuming I guess that the $225K house would quickly become a $450K house so they could double their money. So, why not spend that future profit right now? Our entire economy during the Bush years was completely false. People who owned homes refinanced them at the new, ridicu;lous values and then spent that money, so things were very rosy for a little while and then the party ended and the notes came due.

The bitter funny part is that I bought these $225K places in 2009/2011 for a song because now nobody wanted to buy them. $225K - I'll take it. $45K, ooh, I can't afford it.

Humans. Hard to figure them out:)
 

Fisher

DP Veteran
Joined
Sep 18, 2012
Messages
17,002
Reaction score
6,913
Gender
Male
Political Leaning
Very Liberal
The bitter funny part is that I bought these $225K places in 2009/2011 for a song because now nobody wanted to buy them. $225K - I'll take it. $45K, ooh, I can't afford it.

Humans. Hard to figure them out:)
They have no money for a downpayment so they can't get financing would be my guess.
 

specklebang

Discount Philosopher
DP Veteran
Joined
Jan 13, 2012
Messages
11,524
Reaction score
6,769
Location
Las Vegas
Gender
Undisclosed
Political Leaning
Other
They have no money for a downpayment so they can't get financing would be my guess.
Well, they seem to have it now. A lot of the recent sharp price increases are due to insufficient inventory and slightly late to the table investors.

I do recognize that not everyone is able to accumulate the $20K or so you need to buy a house at 20% down. You have to work and save, work and save. It's not fun and not easy. But it's doable and there seem to be a lot of interested buyers now. I also think that there are alternatives to 20% but I'm not sure why I think I know that so definitely not a fact.
 

ReformCollege

Banned
DP Veteran
Joined
Jul 10, 2012
Messages
4,136
Reaction score
915
Gender
Male
Political Leaning
Slightly Conservative
I agree with you except for the very last part of your statement.

This whole rotating circus of money gives a fortune out to very, very few recipients. These people are accumulators, not consumers. If the "profits" of creating money and then chipping away percentages applied to more people, we would have tremendous inflation. But if you give a billionaire another 100M, they won't chase goods or services with it. If the wealth were spread around, we'd have devastating inflation because "normal" people would start buying things and drive up prices.
The Fed already lends out a certain amount of money every week/month/whatever anyways. I was just suggesting that these "accumulators" should have to bid against each other for how much that lent out money costs.
 

specklebang

Discount Philosopher
DP Veteran
Joined
Jan 13, 2012
Messages
11,524
Reaction score
6,769
Location
Las Vegas
Gender
Undisclosed
Political Leaning
Other
The Fed already lends out a certain amount of money every week/month/whatever anyways. I was just suggesting that these "accumulators" should have to bid against each other for how much that lent out money costs.
Heres how it works (I think).

Ben creates a billion dollars and sells me the bonds. I sell the bonds back to Ben and take a 1% commission. That's about it. I made me an easyt million to stash with my other 99999999 million.

You just need to know the right people......
 

ReformCollege

Banned
DP Veteran
Joined
Jul 10, 2012
Messages
4,136
Reaction score
915
Gender
Male
Political Leaning
Slightly Conservative
Heres how it works (I think).

Ben creates a billion dollars and sells me the bonds. I sell the bonds back to Ben and take a 1% commission. That's about it. I made me an easyt million to stash with my other 99999999 million.

You just need to know the right people......
Here's how I think it should work. You shouldn't be the only buyer for Ben's money. That was my entire point in the first place.
 

ReformCollege

Banned
DP Veteran
Joined
Jul 10, 2012
Messages
4,136
Reaction score
915
Gender
Male
Political Leaning
Slightly Conservative
It would be a disaster akin to letting the market dictate gas prices resulting in wild fluctuations of interest rates.
As the financial crisis showed, keeping interest rates too low for too long without adjustment was a disaster. I think there needs to be some supply and demand going on here.
 

Fisher

DP Veteran
Joined
Sep 18, 2012
Messages
17,002
Reaction score
6,913
Gender
Male
Political Leaning
Very Liberal
As the financial crisis showed, keeping interest rates too low for too long without adjustment was a disaster. I think there needs to be some supply and demand going on here.
It does when the fed stays as far out of it as they can. They are mucking up the bond market
 

ReformCollege

Banned
DP Veteran
Joined
Jul 10, 2012
Messages
4,136
Reaction score
915
Gender
Male
Political Leaning
Slightly Conservative
It does when the fed stays as far out of it as they can. They are mucking up the bond market
What I was suggesting I think would essentially take that power out of the hands of the Feds. Maybe they can control how much money they lend out to banks and thus indirectly control interest rates, but I was proposing what I thought would be a built in mechanism for allowing interest rates to be anti-cyclical according to what the market needs. At the very least, it would provide the Fed with additional data on whats going on in the lending market.
 

specklebang

Discount Philosopher
DP Veteran
Joined
Jan 13, 2012
Messages
11,524
Reaction score
6,769
Location
Las Vegas
Gender
Undisclosed
Political Leaning
Other
Here's how I think it should work. You shouldn't be the only buyer for Ben's money. That was my entire point in the first place.
How about me and 500 other guys. Is that enough?
 

head of joaquin

Banned
DP Veteran
Joined
Oct 19, 2012
Messages
12,029
Reaction score
3,530
Gender
Male
Political Leaning
Progressive
As the financial crisis showed, keeping interest rates too low for too long without adjustment was a disaster. I think there needs to be some supply and demand going on here.
No, deregulation of the financial industry, especially allowing unregulated derivatives, like CDSs, to flood the market, caused the disaster. It was Greenspan's market evangelism that was the problem.

Cheap money is generally good for an economy. Indeed, easy credit is the basis of a modern advanced economy like ours. Without it, it's back to 1880
 

Fisher

DP Veteran
Joined
Sep 18, 2012
Messages
17,002
Reaction score
6,913
Gender
Male
Political Leaning
Very Liberal
Well, they seem to have it now. A lot of the recent sharp price increases are due to insufficient inventory and slightly late to the table investors.

I do recognize that not everyone is able to accumulate the $20K or so you need to buy a house at 20% down. You have to work and save, work and save. It's not fun and not easy. But it's doable and there seem to be a lot of interested buyers now. I also think that there are alternatives to 20% but I'm not sure why I think I know that so definitely not a fact.
Not sure about Vegas, but it is a fact in my area. In the rural areas the FHA apparently are back to zero down per a broker but PMI has tripled and does not drop off at 78%; and in the city there are some 3% down programs. Bricks and Mortar Banks still require 20% down or additional collateral, but brokered loans are heading back into pre-collapse terms with stricter scrutiny. In addition, the fed has a program that helps people keep their house they otherwise would lose, but the details are sketchy and the requirements are arbitrary and inflexible.
 

greyhat

Well-known member
Joined
Jun 26, 2013
Messages
562
Reaction score
159
Gender
Undisclosed
Political Leaning
Undisclosed
No, deregulation of the financial industry, especially allowing unregulated derivatives, like CDSs, to flood the market, caused the disaster. It was Greenspan's market evangelism that was the problem.
Sounds like "Wall Street" forced people o buy houses they couldn't afford..?

Tell me HOJ: what's a CDS?
 

imagep

Villiage Idiot
DP Veteran
Joined
May 7, 2010
Messages
24,399
Reaction score
10,426
Location
Upstate SC
Gender
Male
Political Leaning
Independent
As the financial crisis showed, keeping interest rates too low for too long without adjustment was a disaster. I think there needs to be some supply and demand going on here.
the controls that the fed has are intended to be used as tools to offset the wild swings that the private sector tends to create. Without those tools, there is very little that our government can do to stabilize our economy when it get's crazy.

So what was the disaster? Recovery of the housing market?
 
Top Bottom