tag:blogger.com,1999:blog-8358039.post3032128995869967695..comments2024-03-25T15:17:04.488-07:00Comments on Captain Capitalism: Yet Another Reason Why It's Not "Big Oil"Captain Capitalismhttp://www.blogger.com/profile/05620212946121617985noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-8358039.post-43639848578448987292008-01-12T16:11:00.000-08:002008-01-12T16:11:00.000-08:00"Now, if money that an American borrows from a ban..."Now, if money that an American borrows from a bank (and from a foreign person) earns him/her more than the rate of the loan, isn't that money put to good use?"<BR/><BR/>Sure, if people are actually getting a rate of return higher than the loan, that's good. However, a ridiculous number of Americans take out loans to finance consumption. Rate of return <I>zero</I>.<BR/><BR/>If banks couldn't loan out nine times their actual reserves, interest rates would be much higher. If it helps, think of intersecting supply and demand curves for loanable funds, and think of what would happen if the supply of loanable funds increased nine times faster than normal. You'd have a much lower market clearing price, which in this case is the interest rate.<BR/><BR/>"Now, it seems to me that the problem isn't a lack of savings or interest rates that are too low, but rather banks that aren't actually making sure the loans will pay themselves off."<BR/><BR/>That's definitely another part of the problem. My point was that if interest rates weren't artificially lowered through the fractional reserve system, we'd have fewer people applying for unnecessary loans in the first place. Sloppy research is a very real problem and the Captain would know a whole lot more about that than I would, but do you see where I'm coming from?<BR/><BR/>"This is why the government should not intervene when these crises hit. It only makes the banks lazier about researching their loans.<BR/><BR/>No?"<BR/><BR/>That's absolutely correct.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8358039.post-63198207719557907782008-01-11T11:22:00.000-08:002008-01-11T11:22:00.000-08:00Ryan Fuller said on the last post about inflationa...Ryan Fuller said on the last post about inflationary monetary policy that a gold standard system would mean rising interest rates on borrowing in a time of low savings. Ryan, you are only considering American savings though. Worlwide, there is quite a bit of saving going on (China and India, for exmaple). Now, if money that an American borrows from a bank (and from a foreign person) earns him/her more than the rate of the loan, isn't that money put to good use? Now, it seems to me that the problem isn't a lack of savings or interest rates that are too low, but rather banks that aren't actually making sure the loans will pay themselves off. This is why the government should not intervene when these crises hit. It only makes the banks lazier about researching their loans.<BR/><BR/>No? <BR/><BR/>P.S. I'm only an econ major (student), so if I'm wrong, help me out.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8358039.post-20181355505693547622008-01-10T10:47:00.000-08:002008-01-10T10:47:00.000-08:00Adding on to Ryan's comment, a lot of Canadian mer...Adding on to Ryan's comment, a lot of Canadian merchants will accept U.S. dollars. It's not usually to my advantage to use them, but at least in southwestern Ontario, they are accepted.Kasiahttps://www.blogger.com/profile/12252276821520357094noreply@blogger.comtag:blogger.com,1999:blog-8358039.post-30653130593792614472008-01-09T21:07:00.000-08:002008-01-09T21:07:00.000-08:00Ah, but Captain, becoming more productive wouldn't...Ah, but Captain, becoming more productive wouldn't make imports cheaper. Greater productivity increases the purchasing power of the dollar for domestic purchases as well as foreign imports. The opportunity cost of importing goods would remain the same.<BR/><BR/>Greater specialization would make imports relatively cheaper, however, due to the increase in opportunity costs of buying domestic goods that we're not specialized in producing.<BR/><BR/>"Thus the only thing you can buy with US dollars is the stuff sold in the US."<BR/><BR/>That's mostly true. A lot of places deal in US dollars, especially where moneychangers aren't regulated much. For example, most street vendors in Mexico will accept dollars or pesos.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8358039.post-59633835746802201862008-01-09T20:33:00.000-08:002008-01-09T20:33:00.000-08:00Bingo! Exactly right! They have completely debased...Bingo! Exactly right! They have completely debased the US currency, despite ridiculous statements from Treasury that they are in favor of a strong dollar. Anyone who has US savings or dollar denominated investment has had their wealth cut in half in the last five years. US stock investments in 2007 were up, what, about 6%, but the dollar dropped about 20% meaning -14%!<BR/>Now it may have helped exports, but it is hard to see how it can last...Anonymousnoreply@blogger.com