What if interest rates go to 13%?

[barnaby33]

The first year or two of the Reagan presidency was clearly recessionary, in fact it was deliberately induced by chockingly tight monetary policy.
Reagan and the then-ascendent supply-siders cut marginal tax rates in two steps (1981 & 1983), and the punishingly high capital gains tax rates. The economy roared ahead, tax revenues went way up in response and “paid for” the tax cuts. Supply-siders have ever since pointed to those years as vindication.

As to the tax cuts, I’m not sure what effect they had (I was 8 in 1983.) On the other hand, if they actually made up for the reduction in collections (which is possible) why the need to borrow 50 billion a year from 83 onwards? In my opinion it was spending increases. That is what got the economy expanding. Capital gains decreases only explain in increase in economic activity if you actually believe that money goes into some sort of production based economy. We’ve spent the last 25 years destroying ours and replacing it with the FIRE economy. Now you can blame a Democratic congress if you want to, but Reagan was just as interested to spend all that lovely new cash on defense. Ultimately the borrowing is inflationary though its mostly showed up in things that cannot be imported like health care and education.

[patientrenter]

[quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.

[patientrenter]

[quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.

[patientrenter]

[quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.

[patientrenter]

[quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.

[patientrenter]

[quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.

[jficquette]

[quote=patientrenter][quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

Yes since debt was increased money was created although not literally printed. It just shows up

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.[/quote]

You have a good illustration. In the case where people are actually taking the loans then money is being created. If people don’t want to borrow then no money will be created.

As far as actually printed though no. It will just be a bookkeeping entry in the entities books.

John

[jficquette]

[quote=patientrenter][quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

Yes since debt was increased money was created although not literally printed. It just shows up

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.[/quote]

You have a good illustration. In the case where people are actually taking the loans then money is being created. If people don’t want to borrow then no money will be created.

As far as actually printed though no. It will just be a bookkeeping entry in the entities books.

John

[jficquette]

[quote=patientrenter][quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

Yes since debt was increased money was created although not literally printed. It just shows up

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.[/quote]

You have a good illustration. In the case where people are actually taking the loans then money is being created. If people don’t want to borrow then no money will be created.

As far as actually printed though no. It will just be a bookkeeping entry in the entities books.

John

[jficquette]

[quote=patientrenter][quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

Yes since debt was increased money was created although not literally printed. It just shows up

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.[/quote]

You have a good illustration. In the case where people are actually taking the loans then money is being created. If people don’t want to borrow then no money will be created.

As far as actually printed though no. It will just be a bookkeeping entry in the entities books.

John

[jficquette]

[quote=patientrenter][quote=jficquette]
Net new money isn’t created unless its borrowed. If no debt is in involved then its simply cash to cash.

The Fed doesn’t print money. It sets conditions to influence how much of it is borrowed. Its the borrowing that expands the money supply.

Low rates won’t help anything if people are not willing to borrow it.

John
[/quote]

Yes since debt was increased money was created although not literally printed. It just shows up

John,

So what happens in this case?

1. Govt offers non-recourse 30-year 3% fixed rate home loans to anyone with a pulse, no money down.

2. Govt prints any money necessary to make the loans.

Even I would borrow to buy an overpriced house with that arrangement.[/quote]

You have a good illustration. In the case where people are actually taking the loans then money is being created. If people don’t want to borrow then no money will be created.

As far as actually printed though no. It will just be a bookkeeping entry in the entities books.

John

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