Comments on: The Book on SecStag

By: F.F. Wiley

F.F. Wiley — Thu, 04 Sep 2014 13:16:20 +0000

IMO the secular decline in interest rates is the flip side to the secular increase in debt ratios (debt-to-GDP, debt-to-productive assets, debt-to-sales).

Low rates entice the private sector (and public, but that’s another story) to add more debt, often as much as it can handle given the interest rate structure in place at a point in time. Any jump in rates is then self-extinguishing because it snuffs out loan demand, slows the economy and sometimes causes disinflation.

In other words, changes in interest rates and debt ratios are mutually reinforcing in a way that cumulates over time.

By: Arnold Kling

Arnold Kling — Thu, 04 Sep 2014 13:13:28 +0000

I find it implausible that the Fed can control long-term interest rates in a deep capital market

By: George

George — Thu, 04 Sep 2014 04:45:25 +0000

Why isn’t fed distortion of interest rates a cause of low interest rates?

By: Bryan Willman

Bryan Willman — Wed, 03 Sep 2014 16:24:20 +0000

Overly simple thought:
1. Borrowed money and equity capital are interchangeable.
2. Poor return on capital investment, be it physical or human capital, will cause relatively lower demand for capital funds to invest.
3. Low demand = low price of capital = low interest rates.

1. and 3. are kind of tautological. Arnold is arguing that some form of #2 is important, and suggesting that ill structured government policies are a cause of this. I think that is likely true, but wonder if other things might not also contribute – poor applicability of high gain technologies like software or electric motors to the commanding heights, high consumer resistence to change, high consumer demand for inappropriate or useless products in the segment, high consumer demand for “human touch” independent of the product. [People who like getting their hair cut because they like chatting with the barber… A very effective robot barber will fail at this…]

By: Jeff R.

Jeff R. — Wed, 03 Sep 2014 14:07:29 +0000

Yeah, I suspect investment in education and healthcare would be substantially higher were it not for Certificate of Need laws, which seem absolutely insane to me, and the high cost of obtaining FDA approval sidelining drug and device development for all but the most highly prevalent diseases. The credentialing cartel that is higher education in this country probably has the same effect for education.

Environmental regulation has also strangled (some) investment in the energy industry, which is traditionally a capital intensive sector. New York, from what I hear, is sitting on some large natural gas reserves that have yet to really be tapped due to anxiety about fracking waste water, which seems more and more like one of those irrational public health panics every day that Pennsylvanians remain unpoisoned by the gas industry there.