A Quote by Charles Koch
If we are going to have a Fed, it should not fall into the tyranny of experts with the a fatal conceit that a few wise people can determine interest rates. Interest rates should be driven by the market, and people's time preference, and we see these boom-bust cycles.
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Stock price multiples are negatively correlated with real interest rates. As interest rates rise, the market multiple will fall.
Since 2008 you've had the largest bond market rally in history, as the Federal Reserve flooded the economy with quantitative easing to drive down interest rates. Driving down the interest rates creates a boom in the stock market, and also the real estate market. The resulting capital gains not treated as income.
The underlying strategy of the Fed is to tell people, "Do you want your money to lose value in the bank, or do you want to put it in the stock market?" They're trying to push money into the stock market, into hedge funds, to temporarily bid up prices. Then, all of a sudden, the Fed can raise interest rates, let the stock market prices collapse and the people will lose even more in the stock market than they would have by the negative interest rates in the bank. So it's a pro-Wall Street financial engineering gimmick.
We create these boom-bust cycles by manipulating the money supply and the interest rates and directing it where it went in. And that is what happened with housing: pushed into housing combination of easy money plus all the regulations, and we created this boom-bust cycle, and corruption, because corruption goes with it, because you don't have the same discipline. So we've got to stop all that.
A higher IOER rate encourages banks to raise the interest rates they charge, putting upward pressure on market interest rates regardless of the level of reserves in the banking sector. While adjusting the IOER rate is an effective way to move market interest rates when reserves are plentiful, federal funds have generally traded below this rate.
The degree of monetary policy ease should be associated with the level of real interest rates, not nominal interest rates.
If you let interest rates be freed, be set by the free market, they would rise dramatically. There would be a lot of broken furniture on Wall Street. It needs to be broken. The back of the speculative bubble would be broken and we could slowly heal the financial system. That's what I think we need to do but it's never going to happen because there's trillions of asset values dependent on the Fed continuing to suppress, repress interest rates and shovel $85 billion a month of liquidity into the market.
Let's have honest interest rates. Let's let the free market set interest rates in that zone where supply of savings is matched up with demand for real borrowing for capital projects.
The real challenge was to model all the interest rates simultaneously, so you could value something that depended not only on the three-month interest rate, but on other interest rates as well.
All markets have boom and bust cycles, and I think venture capital market has even more exaggerated boom and bust cycles.
If we want to contrast what we have done in the past few years on delivery with what the right hon. and learned Gentleman delivered, let us remember the interest rates at 10 per cent. to 15 per cent., the 1.5 million fewer people in work, the boom and the bust and the borrowing at 8 per cent.
Britain was set to repeat the boom-bust cycle that led to 15 per cent. interest rates for one whole year in the early 1990s.
The market needs to set prices, including interest rates and allocate resources. If it were up to me, we would abolish the Fed and return to the gold standard. Absent that, the Fed should be completely removed from the political sphere, its dual mandate replaced by a single mission to provide the nation with sound money.
The investor should be aware that even though safety of its principal and interest may be unquestioned, a long term bond could vary widely in market price in response to changes in interest rates.
It's one of the fundamental principles of the stock market: When interest rates go up, stocks go down. And along with financial companies and cyclicals, technology companies - with their sky-high price-to-earnings multiples - should be among the biggest losers in an environment of rising rates.
When interest rates are high you want the average direction in which interest rates are moving to be downward; when interest rates are low you want the average direction to be upward.
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