Goldman Sachs analysis shows 0% rate too high

myp · Jan 21, 2009

Well, this is just crazy: a recent Goldman Sachs analysis says that the current 0% interest rate is not sufficient and it must be reduced to -6% in order to supply what the report calls the "needed amount of monetary stimulus"

This essentially means that the lender losses money on the transaction. It is absurd: http://www.businessweek.com/bwdaily...op+news_top+news+index+-+temp_news+++analysis

pingpong12 · Feb 22, 2009

myp said:
Well, this is just crazy: a recent Goldman Sachs analysis says that the current 0% interest rate is not sufficient and it must be reduced to -6% in order to supply what the report calls the "needed amount of monetary stimulus"

This essentially means that the lender losses money on the transaction. It is absurd: http://www.businessweek.com/bwdaily...op+news_top+news+index+-+temp_news+++analysis

True they would lose money, but myp, at -6% it certainly would stimulate borrowing and eventually spending in our economy

myp · Mar 3, 2009

pingpong12 said:
True they would lose money, but myp, at -6% it certainly would stimulate borrowing and eventually spending in our economy

I am guessing you are being sarcastic and I certainly hope so

- in reality a negative rate is not really possible (thank god for that) and having one right now would only create another bubble

deanhills · Apr 1, 2009

myp said:
in reality a negative rate is not really possible (thank god for that) and having one right now would only create another bubble

But are things real though? We seem to have moved into an era of creative economics, none of it making sense, so according to the rule of not making sense, that may just be likely to happen. With the way things are moving, there may not be a choice in the matter either. Sort of a logical consequence.

myp · Apr 1, 2009

deanhills said:
But are things real though? We seem to have moved into an era of creative economics, none of it making sense, so according to the rule of not making sense, that may just be likely to happen. With the way things are moving, there may not be a choice in the matter either. Sort of a logical consequence.

Well no matter how distorted the markets become with Keynesian economics, they will never be able to change the fact that most people act logically. A negative rate means a lender would give a borrower more money over the loan period than he gets back- no one would make that loan. The only way this is possible is if the government were to subsidize loans and paid the lender extra money to make the loan, so that they ended up in the green.

Delta · Apr 1, 2009

myp said:
Well, this is just crazy: a recent Goldman Sachs analysis says that the current 0% interest rate is not sufficient and it must be reduced to -6% in order to supply what the report calls the "needed amount of monetary stimulus"

Your borrowing rates are 0%? What stops people from borrowing a bunch of money, and then investing it safely at 2-3%? They make their loan payments and bank the 2-3% or more each month... or maybe I'm missing something?

myp · Apr 1, 2009

Delta said:
Your borrowing rates are 0%? What stops people from borrowing a bunch of money, and then investing it safely at 2-3%? They make their loan payments and bank the 2-3% or more each month... or maybe I'm missing something?

Well, those rates are for depository institutions in the Federal Reserve- basically the interest rate that the banks charge each other. These lead to lower rates overall, but obviously you can't go out and actually get a loan for 0% because they have no reason to give it.

curious · Apr 2, 2009

myp said:
they will never be able to change the fact that most people act logically. .

I don't believe that, and I think it is the great fallacy of economics. I was taught that all economic theory is based on a rational man with full and equal access to information. None of that exists.

Most people don't pay much attention to what they are doing, and they don't act rationally, they rationalize.

deanhills · Apr 2, 2009

curious said:
I don't believe that, and I think it is the great fallacy of economics. I was taught that all economic theory is based on a rational man with full and equal access to information. None of that exists.

Most people don't pay much attention to what they are doing, and they don't act rationally, they rationalize.

Totally agreed! And I like the way you put it: don't act rationally, but rationalize. For me it is as though they have a set objective that they want to achieve and then they design economics to fit in with that, so they recreate economics all the time.

myp · Apr 2, 2009

curious said:
I don't believe that, and I think it is the great fallacy of economics. I was taught that all economic theory is based on a rational man with full and equal access to information. None of that exists.

Most people don't pay much attention to what they are doing, and they don't act rationally, they rationalize.

The problem with this sort of thinking is that it leads to ideas that people are stupid and that the government should take care of them. What ends up happening in the long run is that the people lose their freedom and the government continues to get bigger and bigger until it is no longer sustainable.

People do think logically if they are given the freedom to do so- if they are put in charge of their own lives and if they are made responsible for themselves.

In this particular case, even people who don't think rationally probably wouldn't give out a loan where they'd lose money because that is essentially just like giving away all of your money- which isn't something you see everyday.

Sparks · Apr 2, 2009

Math?

Okay, now if you have a formula that produces a negative number (I vaguely remember them from high school, but class was in the afternoon and it was hot and I was sleepy) then you report it. A negative number doesn't make real sense, like they are going to start paying you six percent to borrow money, though it would be nice, eh? It just means the system is so out of whack that we seem to be stepping through the looking glass.