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Alasdair Macleod: Why interest rate management fails
By Alasdair Macleod
GoldMoney, St. Helier, Jersey, Channel Islands
Thursday, April 22, 2021
This article explains why attempting to achieve economic outcomes by managing interest rates fails. The basis of monetary interventionist theories ignores the discoveries of earlier free-market thinkers, particularly Say, Turgot, and Böhm-Bawerk.
It also ignores Gibson's Paradox, which demolishes the theory that managing interest rates controls price inflation. And incredibly, the whole basis of banking regulation assumes that commercial banks are just intermediaries between depositors and borrowers. That model of banking fails to address the simple fact that banks create credit out of thin air and that deposits are the property of the banks, and not their customers.
... Dispatch continues below ...
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The process of credit creation is described herein and is markedly different from that commonly assumed. Changes in the level of outstanding bank credit have nothing to do with interest rates, except perhaps in extremis.
It is hardly surprising, therefore, that critical mistakes are being made by policy planners. And we find that the U.S. bank cohort is now reducing outstanding bank credit for the non-financial economy, which will make it impossible for businesses to deliver sufficient product to satisfy expected consumer demand. Far higher consumer prices than currently discounted in financial markets will follow.
Consequently, bond yields are set to rise much further, marking the end of the global financial asset bubble, and the failure of the fiat currency regime. ...
... For the remainder of the analysis:
https://www.goldmoney.com/research/goldmoney-insights/why-interest-rate-...
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