I still get confused trying to explain the interest rate to other individuals (obviously stemming from my lack of know). For example, , in Introduction to Austrian Economics says that “We have seen already that the interest rate reflects the ratio of present goods valuation to future goods valuatio…

Jeremiah, I read your questions, but I’m having trouble understanding exactly what it is that is confusing you. Are you looking for a discussion about the nature of interest rates, time preference, and subjective value scales? I was going to phrase an answer along these lines, but thought I should c…

Interest is very simple. Taylor is assuming that a bank will get its money from people walking in off the street. But if the people on the street want to spend their money on cakes, what will draw them to the bank to deposit their money instead? Answer: Up the interest being paid by the bank to the…

As far as bank loans are concerned, time deposits can earn interest so no FRB scheme is necessary. However, your question raises the suspicion that you are confused about something much more fundamental. The contribution of the loans market on the market rate of interest is much smaller then most p…

There is nothing inherently fractional about interest rates. I have a sneaking suspicion that you’ve watched Paul Grignon’s “Money as Debt” video. If you have, you need to perform a disk format on that partition of your brain and perhaps securely wipe it a few times with PGP desktop. After you’re d…

Thurs. 10/04/08 15:53 EDT . post #48 I think this is wrong. When the Man On The Street demands his money, the FR Bank need only borrow money from the Fed to satisfy MOTS’s demand (or, more correctly, enough money to replenish their reserve requirement for Gates’s loan.) The Fed happily creates th…

That depends on your definition of inflationary. But what happens when the bank pyramids multiple loans on top of the original deposit? Do you consider that inflationary according to your own definition?

MMMark, All you say may be true, I don’t claim intimate knowledge of the subject. I did know about the 90% part, but gave a simplified example that would make clear the point that even at zero interest all the “challenges” of FRB are there.

Thurs. 10/04/08 16:26 EDT . post #49 Inflationary: causing an increase in the supply of money. What do you mean by “pyramids multiple loans on top of the original deposit”? You mean, like in this wiki explanation ? If yes, then no, it’s not inflationary, according to my definition, because this …

Thurs. 10/04/08 16:36 EDT . post #50 Acknowledged. The details weren’t pertinent to your point. Still, I think it’s good to be as accurate as possible. Statists will pick out errors and point to them, claiming that “Austrians are deluded,” stuff like that. People unfamiliar with FRB might read som…

Then it’s clearly inflationary. $100 with 10% reserves increases the money supply by $90 for a total of $190. When the loan is repaid, the money supply will contract back to $100. The wiki explanation you provided contradicts what you say. Your own definition of inflation amounts to an increase i…

The Interest Rate

Economics Economics Questions

DD5 April 8, 2010, 9:06pm 16

Yes, this is true. To continue the boom, the FED has to inject more money.

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The Interest Rate

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